Rule2022-22986
Assessments, Amendments To Incorporate Troubled Debt Restructuring Accounting Standards Update
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 24, 2022
Effective
January 1, 2023
Issuing agencies
Federal Deposit Insurance Corporation
Abstract
The Federal Deposit Insurance Corporation is adopting a final rule that incorporates updated accounting standards in the risk-based deposit insurance assessment system applicable to all large insured depository institutions (IDIs), including highly complex IDIs. The FDIC calculates deposit insurance assessment rates for large and highly complex IDIs based on supervisory ratings and financial measures, including the underperforming assets ratio and the higher-risk assets ratio, both of which are determined, in part, using restructured loans or troubled debt restructurings (TDRs). The final rule includes modifications to borrowers experiencing financial difficulty, an accounting term recently introduced by the Financial Accounting Standards Board (FASB) to replace TDRs, in the underperforming assets ratio and higher-risk assets ratio for purposes of deposit insurance assessments.
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[Federal Register Volume 87, Number 204 (Monday, October 24, 2022)]
[Rules and Regulations]
[Pages 64348-64356]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-22986]
[[Page 64347]]
Vol. 87
Monday,
No. 204
October 24, 2022
Part IV
Federal Deposit Insurance Corporation
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12 CFR Part 327
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Assessments, Amendments To Incorporate Troubled Debt Restructuring
Accounting Standards Update; Final Rule
Federal Register / Vol. 87, No. 204 / Monday, October 24, 2022 /
Rules and Regulations
[[Page 64348]]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 327
RIN 3064-AF85
Assessments, Amendments To Incorporate Troubled Debt
Restructuring Accounting Standards Update
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Final rule.
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SUMMARY: The Federal Deposit Insurance Corporation is adopting a final
rule that incorporates updated accounting standards in the risk-based
deposit insurance assessment system applicable to all large insured
depository institutions (IDIs), including highly complex IDIs. The FDIC
calculates deposit insurance assessment rates for large and highly
complex IDIs based on supervisory ratings and financial measures,
including the underperforming assets ratio and the higher-risk assets
ratio, both of which are determined, in part, using restructured loans
or troubled debt restructurings (TDRs). The final rule includes
modifications to borrowers experiencing financial difficulty, an
accounting term recently introduced by the Financial Accounting
Standards Board (FASB) to replace TDRs, in the underperforming assets
ratio and higher-risk assets ratio for purposes of deposit insurance
assessments.
DATES: The final rule is effective January 1, 2023.
FOR FURTHER INFORMATION CONTACT: Scott Ciardi, Chief, Large Bank
Pricing, 202-898-7079, <a href="/cdn-cgi/l/email-protection#b7c4d4ded6c5d3def7d1d3ded499d0d8c1"><span class="__cf_email__" data-cfemail="7506161c1407111c3513111c165b121a03">[email protected]</span></a>; Ashley Mihalik, Chief, Banking
and Regulatory Policy, 202-898-3793, <a href="/cdn-cgi/l/email-protection#492824202128252022092f2d202a672e263f"><span class="__cf_email__" data-cfemail="9ffef2f6f7fef3f6f4dff9fbf6fcb1f8f0e9">[email protected]</span></a>; Kathryn Marks,
Counsel, 202-898-3896, <a href="/cdn-cgi/l/email-protection#7f14121e0d140c3f191b161c51181009"><span class="__cf_email__" data-cfemail="e78c8a86958c94a781838e84c9808891">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Policy Objective and Overview of Final Rule
The Federal Deposit Insurance Act (FDI Act) requires that the FDIC
establish a risk-based deposit insurance assessment system.\1\ The
risk-based assessment system calculates assessments by weighing, among
other things, the risks attributable to ``different categories and
concentrations of assets'' and ``any other factors the Corporation
determines are relevant'' to the risk of a loss to the DIF, as well as
``the revenue needs of the Deposit Insurance Fund.'' \2\ The purpose of
this final rule is to address a change to accounting standards that
affects the FDIC's calculations of risk-based assessments for IDIs.
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\1\ 12 U.S.C. 1817(b).
\2\ See Section 7(b)(1)(C) of the FDI Act, 12 U.S.C.
1817(b)(1)(C).
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In 2022, the Financial Accounting Standards Board (FASB) eliminated
the recognition and measurement guidance of certain loans with changes
to the original terms, known as troubled debt restructurings (TDRs),
and, instead, introduced new requirements related to financial
statement disclosure of certain modifications of receivables made to
borrowers experiencing financial difficulty, or ``modifications to
borrowers experiencing financial difficulty.'' \3\ TDRs reported by
large and highly complex IDIs have been used in the FDIC's risk-based
assessment system as one component in the calculation of a bank's
overall level of risk.\4\ These restructured loans typically present an
elevated level of credit risk as the borrowers are not able to perform
according to the original contractual terms, and the FDIC prices for
this risk through the large and highly complex bank scorecards.
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\3\ FASB Accounting Standards Update (ASU) No. 2022-02,
``Financial Instruments--Credit Losses (Topic 326): Troubled Debt
Restructurings and Vintage Disclosures,'' March 2022, available at
<a href="https://www.fasb.org/page/getarticle?uid=fasb_Media_Advisory_03-31-22">https://www.fasb.org/page/getarticle?uid=fasb_Media_Advisory_03-31-22</a>.
\4\ For deposit insurance assessment purposes, large IDIs are
generally those that have $10 billion or more in total assets. A
highly complex IDI is generally defined as an institution that has
$50 billion or more in total assets and is controlled by a parent
holding company that has $500 billion or more in total assets, or is
a processing bank or trust company. See 12 CFR 327.8(f) and (g). As
used in this final rule, the term ``large bank'' is synonymous with
``large institution,'' and the term ``highly complex bank'' is
synonymous with ``highly complex institution,'' as those terms are
defined in 12 CFR 327.8.
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In order to ensure that the risk-based assessment system continues
to capture the risk posed by restructured loans, the FDIC is finalizing
its proposal to include modifications to borrowers experiencing
financial difficulty in the large and highly complex bank scorecards,
as such term will replace TDRs upon adoption of ASU 2022-02. To
incorporate the updated accounting standards into deposit insurance
assessments, the final rule defines ``restructured loans'' in the
underperforming assets ratio to include modifications to borrowers
experiencing financial difficulty, and includes such modifications in
the definitions used in the higher-risk assets ratio. Both of these
ratios are used to determine risk-based deposit insurance assessments
for large and highly complex banks. Absent the final rule, the FDIC
would not be able to price for modifications to borrowers experiencing
financial difficulty, which are restructured loans and a meaningful
indicator of credit risk, once most institutions adopt ASU 2022-02 and
updates to the Call Report have been implemented as of March 31, 2023.
Failure to capture this risk in deposit insurance assessments for large
and highly complex banks could adversely affect the DIF.
II. Background
A. Deposit Insurance Assessments
The FDIC charges all IDIs an assessment for deposit insurance equal
to the IDI's deposit insurance assessment base multiplied by its risk-
based assessment rate.\5\ An IDI's assessment base and assessment rate
are determined each quarter using supervisory ratings and information
collected from the Consolidated Reports of Condition and Income (Call
Report) or the Report of Assets and Liabilities of U.S. Branches and
Agencies of Foreign Banks (FFIEC 002), as appropriate. Generally, an
IDI's assessment base equals its average consolidated total assets
minus its average tangible equity.\6\
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\5\ See 12 CFR 327.3(b)(1).
\6\ See 12 CFR 327.5.
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An IDI's assessment rate is calculated using different methods
dependent upon whether the IDI is classified for deposit insurance
assessment purposes as a small, large, or highly complex bank.\7\ Large
and highly complex banks are assessed using a scorecard approach that
combines CAMELS ratings and certain forward-looking financial measures
to assess the risk that a large or highly complex bank poses to the
Deposit Insurance Fund (DIF).\8\ The score that each large or highly
complex bank receives is used to determine its deposit insurance
assessment rate. One scorecard applies to most large banks and another
applies to highly complex banks. Both scorecards use quantitative
financial measures that are useful for predicting a large or highly
complex bank's long-term performance. Two of the measures in the large
and highly complex bank scorecards, the credit quality measure and the
concentration measure, are determined using restructured loans or TDRs.
These measures are described in more detail below.
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\7\ See 12 CFR 327.8(e), (f), and (g).
\8\ See 12 CFR 327.16(b); see also 76 FR 10672 (Feb. 25, 2011)
and 77 FR 66000 (Oct. 31, 2012).
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B. Credit Quality Measure
Both the large bank and the highly complex bank scorecards include
a
[[Page 64349]]
credit quality measure. The credit quality measure is the greater of
(1) the criticized and classified items to the sum of Tier 1 capital
and reserves score or (2) the underperforming assets to the sum of Tier
1 capital and reserves score.\9\ Each risk measure, including the
criticized and classified items ratio and the underperforming assets
ratio, is converted to a score between 0 and 100 based upon minimum and
maximum cutoff values.\10\
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\9\ See 12 CFR 327.16(b)(1)(ii)(A)(2)(iv).
\10\ See 12 CFR part 327, appendix B.
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The underperforming assets ratio is described identically in the
large and highly complex bank scorecards as the sum of loans that are
30 days or more past due and still accruing interest, nonaccrual loans,
restructured loans (including restructured 1-4 family loans), and other
real estate owned (ORE), excluding the maximum amount recoverable from
the U.S. Government, its agencies, or Government-sponsored agencies,
under guarantee or insurance provisions, divided by a sum of Tier 1
capital and reserves.\11\
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\11\ See 12 CFR part 327, appendix A.
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The specific data used to identify the ``restructured loans''
referenced in the above description are those items that banks disclose
in their Call Report on Schedule RC-C, Part I, Memorandum items 1.a.
through 1.g, ``Loans restructured in troubled debt restructurings that
are in compliance with their modified terms.'' The portion of
restructured loans that are guaranteed or insured by the U.S.
Government are excluded from underperforming assets. This data is
collected in Call Report Schedule RC-O, Memorandum item 16, ``Portion
of loans restructured in troubled debt restructurings that are in
compliance with their modified terms and are guaranteed or insured by
the U.S. government.''
C. Concentration Measure
Both the large and highly complex bank scorecards also include a
concentration measure. The concentration measure is the greater of (1)
the higher-risk assets to the sum of Tier 1 capital and reserves score
or (2) the growth-adjusted portfolio concentrations score.\12\ Each
risk measure, including the higher risk assets ratio and the growth-
adjusted portfolio concentrations ratio, is converted to a score
between 0 and 100 based upon minimum and maximum cutoff values.\13\ The
higher-risk assets ratio captures the risk associated with concentrated
lending in higher-risk areas. Higher-risk assets include construction
and development (C&D) loans, higher-risk commercial and industrial
(C&I) loans, higher-risk consumer loans, nontraditional mortgage loans,
and higher-risk securitizations.\14\
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\12\ See 12 CFR 327.16(b)(1)(ii)(A)(2)(iii).
\13\ See 12 CFR part 327, appendix C.
\14\ Id.
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Higher-risk C&I loans are defined, in part, based on whether the
loan is owed to the bank by a higher-risk C&I borrower, which includes,
among other things, a borrower that obtains a refinance of an existing
C&I loan, subject to certain conditions. Higher-risk consumer loans are
defined as all consumer loans where, as of origination, or, if the loan
has been refinanced, as of refinance, the probability of default within
two years is greater than 20 percent, excluding those consumer loans
that meet the definition of a nontraditional mortgage loan. A refinance
for purposes of higher-risk C&I loans and higher-risk consumer loans is
defined in the assessment regulations and explicitly does not include
modifications to a loan that would otherwise meet the definition of a
refinance, but that results in the classification of a loan as a TDR.
D. FASB's Elimination of Troubled Debt Restructurings
On March 31, 2022, FASB issued ASU 2022-02.\15\ This update
eliminated the recognition and measurement guidance for TDRs for all
entities that have adopted FASB Accounting Standards Update No. 2016-13
(ASU 2016-13), ``Financial Instruments--Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments'' and the Current
Expected Credit Losses (CECL) methodology.\16\ The rationale was that
ASU 2016-13 requires the measurement and recording of lifetime expected
credit losses on an asset that is within the scope of ASU 2016-13, and
as a result, credit losses from TDRs have been captured in the
allowance for credit losses. Therefore, stakeholders observed and
asserted that the additional designation of a loan modification as a
TDR and the related accounting were unnecessarily complex and provided
less meaningful information than under the incurred loss
methodology.\17\
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\15\ FASB Accounting Standards Update No. 2022-02, ``Financial
Instruments--Credit Losses (Topic 326): Troubled Debt Restructurings
and Vintage Disclosures,'' available at <a href="https://www.fasb.org/Page/ShowPdf?path=ASU+2022-02.pdf">https://www.fasb.org/Page/ShowPdf?path=ASU+2022-02.pdf</a>.
\16\ FASB Accounting Standards Update No. 2016-13, ``Financial
Instruments--Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments,'' June 2016, available at <a href="https://www.fasb.org/Page/ShowPdf?path=ASU+2016-13.pdf">https://www.fasb.org/Page/ShowPdf?path=ASU+2016-13.pdf</a>.
\17\ FASB Accounting Standards Update No. 2022-02, at BC19, pp.
57-58.
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The update eliminates the recognition of TDRs and, instead,
introduces new and enhanced financial statement disclosure requirements
related to certain modifications of receivables made to borrowers
experiencing financial difficulty, or ``modifications to borrowers
experiencing financial difficulty.'' Such modifications are limited to
those that result in principal forgiveness, interest rate reductions,
other-than-insignificant payment delays, or term extensions in the
current reporting period. Modifications to borrowers experiencing
financial difficulty may be different from those previously captured in
TDR disclosures because an entity no longer would have to determine
whether the creditor has granted a concession, which is a current
requirement to determine whether a modification represents a TDR. The
update requires entities to disclose information about (a) the types of
modifications provided, disaggregated by modification type, (b) the
expected financial effect of those modifications, and (c) the
performance of the loans after modification.
For entities that have adopted CECL, ASU 2022-02 is effective for
fiscal years beginning after December 15, 2022.\18\ FASB also permitted
the early adoption of ASU 2022-02 by any entity that has adopted CECL.
For regulatory reporting purposes, if an institution chooses to early
adopt ASU 2022-02 during 2022, Supplemental Instructions to the Call
Report specify that the institution should implement ASU 2022-02 for
the same quarter-end report date and report ``modifications to
borrowers experiencing financial difficulty'' in the current TDR Call
Report line items.\19\ These line items include Schedule RC-C, Part I,
Memorandum items 1.a. through 1.g., which are used to identify
``restructured loans'' for the underperforming asset ratio used in the
large and highly complex bank scorecards, described above. As a result,
to date, a large or highly complex institution that has early adopted
ASU
[[Page 64350]]
2022-02 and is reporting modifications to borrowers experiencing
financial difficulty in the current TDR Call Report line items is
assigned a deposit insurance assessment rate that relies, in part, on
this reporting. The FDIC and other members of the Federal Financial
Institutions Examination Council (FFIEC) are planning to revise the
Call Report forms and instructions to replace the current TDR
terminology with updated language from ASU 2022-02 for the first
quarter of 2023.
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\18\ Generally, entities that are U.S. Securities and Exchange
Commission (SEC) filers, excluding smaller reporting companies as
defined by the SEC, were required to adopt CECL beginning in January
2020. Most other entities are required to adopt CECL beginning in
January 2023.
\19\ See Financial Institution Letter (FIL) 17-2022,
Consolidated Reports of Condition and Income for First Quarter 2022.
See also Supplemental Instructions, March 2022 Call Report
Materials, First 2022 Call, Number 299, available at <a href="https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_FFIEC041_FFIEC051_suppinst_202203.pdf">https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_FFIEC041_FFIEC051_suppinst_202203.pdf</a>.
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III. Discussion of Comments Received
On July 27, 2022, the FDIC published in the Federal Register a
notice of proposed rulemaking, (the proposed rule, or proposal) \20\
that would incorporate into the large and highly complex bank
assessment scorecards the updated accounting standard that eliminates
the recognition of TDRs and, instead, requires new financial statement
disclosures on ``modifications to borrowers experiencing financial
difficulty.'' Specifically, the FDIC proposed to expressly define
restructured loans in the underperforming assets ratio to include
``modifications to borrowers experiencing financial difficulty.'' The
FDIC also proposed to amend the definition of a refinance for the
purposes of determining whether a loan is a higher-risk C&I loan or a
higher-risk consumer loan, both elements of the higher-risk assets
ratio. Under the proposal, a refinance would not include modifications
to a loan that otherwise would meet the definition of a refinance, but
that result in the classification of a loan as a modification to
borrowers experiencing financial difficulty. The proposal would not
affect the small bank deposit insurance assessment system.
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\20\ 87 FR 45023 (July 27, 2022).
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The FDIC issued the proposed rule with a 30-day comment period. The
FDIC received two comment letters in response to the proposal.
Commenters included two trade associations that submitted a joint
comment letter (collectively, the Associations) and an insured
depository institution. Generally, the commenters expressed support for
the removal of TDRs from the large and highly complex bank assessment
scorecards upon adoption of CECL and ASU 2022-02.
The commenters also asked the FDIC to consider removing TDRs
without replacement, stating that the new accounting term,
``modifications to borrowers experiencing financial difficulty,'' is
not an appropriate replacement for TDRs in the large and highly complex
bank scorecards. The Associations stated that modifications to
borrowers experiencing financial difficulty are not a measure of asset
quality and are not analogous to TDRs.
With respect to these comments, the FDIC recognizes that while
modifications to borrowers experiencing financial difficulty and TDRs
are not identically defined, they both are types of restructured loans
and are indicators of elevated credit risk. TDRs have been an important
component of risk-based pricing for large and highly complex banks, as
they have been shown to be a statistically significant predictor of the
performance of large institutions during a stress period.\21\ Though
not identical to TDRs, modifications to borrowers experiencing
financial difficulty are made to borrowers who are unable to perform
according to the original contractual terms of their loans. Such
modification activity typically indicates an elevated level of credit
risk. While the reporting of TDRs will be eliminated under ASU 2022-02,
the risk presented by restructured loans remains.
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\21\ 76 FR at 10688 (Feb. 25, 2011).
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All commenters supported the removal of TDRs from the large and
highly complex bank scorecards, and one commenter stated that the
alternative of requiring large banks to continue to report TDRs solely
for purposes of calculating deposit insurance assessments would impose
significant burdens whose costs would not justify the benefits. In the
absence of TDRs, the FDIC believes that the new accounting term should
be included in the large bank scorecard's credit quality measure as an
indicator of elevated credit risk. The alternative suggested by
commenters, eliminating TDRs entirely from the large bank scorecard and
not replacing them with modifications to borrowers experiencing
financial difficulty, would eliminate a significant indicator of credit
risk. Accounting for this risk is important to meeting the FDIC's
statutory obligation to assess institutions based on risk, and failure
to capture this risk in deposit insurance assessments for large and
highly complex banks could adversely affect the DIF.
The Associations also wrote that replacing TDRs with modifications
to borrowers experiencing financial difficulty would result in double-
counting of these loans in the underperforming asset ratio because such
modifications include both performing and non-performing loans.
Currently, reporting by early adopters distinguishes between performing
and non-performing modifications to borrowers experiencing financial
difficulty, thereby ensuring that such loans will not be double-counted
in the underperforming assets ratio. The FDIC will monitor future
updates to the reporting of modifications to borrowers experiencing
financial difficulty for changes that would result in double-counting
in the underperforming assets ratio, if any.
All commenters suggested that including modifications to borrowers
experiencing financial difficulty in large bank pricing would
discourage banks from working with their borrowers and would result in
pro-cyclical assessments. With respect to this concern, the FDIC does
not believe that its proposal to include modifications to borrowers
experiencing financial difficulty in the large bank and highly complex
bank scorecards is inconsistent with guidance that encourages
institutions to work prudently and constructively with borrowers who
are unable to meet their contractual payment obligations due to
financial stress.\22\ Loan modification programs can serve as proactive
measures that are in the best interests of institutions and their
borrowers, and can ultimately reduce overall loss exposure. At the same
time, modifications typically reflect elevated credit risk compared to
loans that have not been modified and should be included in a credit
quality measure for risk-based deposit insurance assessments.
Institutions have an incentive to work prudently and constructively
with borrowers through loan modification programs to reduce the
likelihood of the loans not performing and facing both higher losses
and deposit insurance assessments as a result of reporting increased
non-performing loans and losses. Lastly, the Federal banking agencies
emphasize that examiners will exercise judgment in reviewing loan
modifications. Examiners will not automatically adversely classify such
loans or criticize institutions for working with borrowers in a safe
and sound manner.
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\22\ See, e.g., FDIC Press Release 49-2020, ``Agencies Issue
Revised Interagency Statement on Loan Modifications by Financial
Institutions Working with Customers Affected by the Coronavirus,''
dated April 7, 2020, available at <a href="https://www.fdic.gov/news/press-releases/2020/pr20049.html">https://www.fdic.gov/news/press-releases/2020/pr20049.html</a>.
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All commenters asked the FDIC to consider limiting the data on
modifications to borrowers experiencing financial difficulty to those
loan modifications that occurred in the prior 12 months from the
reporting date of the assessment. The commenters stated that ASU 2022-
02 requires the disclosure of
[[Page 64351]]
certain modifications to borrowers experiencing financial difficulty
for the current reporting period and then certain performance
disclosures for modifications to borrowers experiencing financial
difficulty in the 12 months after the modifications, in contrast with
TDRs which are reported on a cumulative basis. To allow bankers to
better understand how loan modifications to borrowers experiencing
financial difficulty will be reported on the Call Report, and to
comment on how the proposed changes would affect assessments, the
Associations requested that the FDIC reopen the comment period for the
proposal once revisions to the Call Report instructions have been made.
As discussed above, the FDIC and other members of the FFIEC are
planning to revise the Call Report forms and instructions to replace
the current TDR terminology with updated language from ASU 2022-02 for
the first quarter of 2023. The proposed revisions to the instructions
would describe how institutions would apply ASU 2022-02 and report
modifications to borrowers experiencing financial difficulty.
Institutions will have an opportunity to comment on the joint notice
and request for comment on the proposed revisions to the Call Report,
including the aspects of the collections of information, such as burden
and utility of the information to be collected.
As commenters noted, and as described below in the Expected Effects
section, the FDIC will not have the information necessary to fully
estimate the impact of the final rule even once updated Call Report
instructions are in place, as the majority of large and highly complex
banks have not yet adopted ASU 2022-02 and are not reporting data on
modifications to borrowers experiencing financial difficulty.
Modifications to borrowers experiencing financial difficulty could be
higher, lower, or similar to previously reported TDRs, due to a number
of factors beyond the Call Report instructions.
Modifications to borrowers experiencing financial difficulty are
restructured loans and, in the FDIC's view, are an indicator of
elevated credit risk that should be included in the large bank and
highly complex bank scorecards. Furthermore, such elevated credit risk
is not necessarily eliminated within a given time frame, such as a 12
month period.
Accounting for such risk is particularly important once
institutions implement ASU 2022-02 and no longer report TDRs, which for
most institutions will be March 31, 2023. Therefore, the FDIC intends
to use the modifications data as defined in the updated Call Report
instructions once they are finalized. Reopening the comment period
would delay the effective date of the final rule and the FDIC would not
be able to account for the risk posed by modifications to borrowers
experiencing financial difficulty. Once banks begin to report
modifications to borrowers experiencing financial difficulty, such
modifications will be the only replacement available to capture the
risk presented by restructured loans that has previously been captured
by the reporting of TDRs for large and highly complex bank deposit
insurance assessments. While commenters stated that modifications to
borrowers experiencing financial difficulty were not an appropriate
substitute for TDRs, no commenter offered an alternative that would
sufficiently capture the risk presented by restructured loans.
In light of commenters' concerns about how modifications to
borrowers experiencing financial difficulty will be reported, and given
that there may be some uncertainty over how the inclusion of
modifications to borrowers experiencing financial difficulty in lieu of
TDRs might affect underperforming assets and assessments, the FDIC
recognizes that it may need to propose an additional data collection
item or revise the underperforming assets ratio after a reasonable
period of observation to adequately price for the risk presented by
such modifications.
IV. The Final Rule
A. Summary
The FDIC is adopting the proposed rule without change. Under the
final rule, the FDIC will incorporate into the large and highly complex
bank assessment scorecards the updated accounting standard that
eliminates the recognition of TDRs and, instead, requires new financial
statement disclosures on ``modifications to borrowers experiencing
financial difficulty.'' The FDIC also will expressly define
restructured loans in the underperforming assets ratio to include
``modifications to borrowers experiencing financial difficulty.''
Lastly, the FDIC will amend the definition of a refinance for the
purposes of determining whether a loan is a higher-risk C&I loan or a
higher-risk consumer loan, both elements of the higher-risk assets
ratio. Under the final rule, a refinance would not include
modifications to a loan that otherwise would meet the definition of a
refinance, but that result in the classification of a loan as a
modification to borrowers experiencing financial difficulty. The final
rule does not affect the small bank deposit insurance assessment
system.
B. Underperforming Assets Ratio
The FDIC is amending the underperforming assets ratio used in the
large and highly complex bank pricing scorecards to conform to the
updated accounting standards in ASU 2022-02. The amended text will
explicitly define restructured loans to include modifications to
borrowers experiencing financial difficulty, which the FDIC will use to
calculate assessments for large and highly complex banks that have
adopted CECL and ASU 2022-02, and TDRs, which the FDIC will continue to
use for the remaining large and highly complex banks.
C. Higher-Risk Assets Ratio
The FDIC is amending the definition of a refinance, in determining
whether a loan is a higher-risk C&I loan or a higher-risk consumer loan
for deposit insurance assessment purposes, to conform to the updated
accounting standards in ASU 2022-02. Specifically, a refinance of a C&I
loan will not include a modification or series of modifications to a
commercial loan that would otherwise meet the definition of a
refinance, but that result in the classification of a loan as a
modification to borrowers experiencing financial difficulty, for a
large or highly complex bank that has adopted CECL and ASU 2022-02, or
that result in the classification of a loan as a TDR, for all remaining
large and highly complex banks. For purposes of higher-risk consumer
loans, a refinance will not include modifications to a loan that would
otherwise meet the definition of a refinance, but that result in the
classification of a loan as a modification to borrowers experiencing
financial difficulty, for a large or highly complex bank that has
adopted CECL and ASU 2022-02, or that result in the classification of a
loan as a TDR, for all remaining large and highly complex banks.
V. Expected Effects
As of June 30, 2022, the FDIC insured 144 banks that were
classified as large or highly complex for deposit insurance assessment
purposes, and that will be affected by the final rule.\23\ The FDIC
expects most of these institutions will adopt CECL by January 1, 2023,
the effective date of the rule. Absent the final rule, the FDIC would
not be able to price for modifications to borrowers experiencing
financial difficulty, which
[[Page 64352]]
are restructured loans and a meaningful indicator of credit risk, once
most institutions adopt ASU 2022-02 and updates to the Call Report have
been implemented as of March 31, 2023. Failure to capture this risk in
deposit insurance assessments for large and highly complex banks could
adversely affect the DIF.
---------------------------------------------------------------------------
\23\ FDIC Call Report data June 30, 2022.
---------------------------------------------------------------------------
The primary expected effect of the final rule is the change in
underperforming assets, and the consequent change in assessment rates,
that will occur as a result of the difference between the amount of
TDRs that most banks are currently reporting and the amount of
modifications to borrowers experiencing financial difficulty that banks
will report upon adoption of ASU 2022-02. The effect of this final rule
on assessments paid by large and highly complex banks is difficult to
estimate since most banks have not yet implemented ASU 2022-02 and are
not reporting modifications to borrowers experiencing financial
difficulty, and the FDIC does not know how the amount of reported
modifications to borrowers experiencing financial difficulty will
compare to the amount of TDRs that affected banks report over time.
In general, the FDIC continues to expect that the initial amount of
modifications made to borrowers experiencing financial difficulty will
be lower than previously reported TDRs. This is because under ASU 2022-
02, reporting of modifications to borrowers experiencing financial
difficulty should be applied prospectively and would therefore apply
only to modifications made after a bank adopts the standard. However,
in the long term it is possible that the amount of modifications to
borrowers experiencing financial difficulty could be higher or lower
than the amount of TDRs that banks would have reported prior to
adoption of ASU 2022-02. Therefore, under the final rule, the
underperforming assets ratio could be higher or lower due to the
adoption of ASU 2022-02, and the resulting ratio may or may not affect
an individual bank's assessment rate, depending on whether it is the
binding ratio for the credit quality measure.
The FDIC does not have the information necessary to estimate the
expected effects of the final rule to incorporate the new accounting
standard into the large and highly complex bank scorecards. Analysis
detailed in the notice of proposed rulemaking illustrates a range of
potential outcomes based on TDRs reported as of December 31, 2021, the
last quarter before FASB issued ASU 2022-02. The analysis is unchanged
because some large banks may have early adopted ASU 2022-02 during
2022, so December 31, 2021, is still the last quarter all banks were
required to report TDRs.
The FDIC calculated some illustrative examples of the effect on
assessments if modifications made to borrowers experiencing financial
difficulty are lower than certain amounts of previously reported TDRs.
For example, if all large and highly complex banks had reported zero
TDRs as of December 31, 2021, before FASB issued ASU 2022-02, the
impact on the underperforming assets ratio would have reduced total
deposit insurance assessment revenue by an annualized amount of
approximately $90 million; if modifications were 50 percent lower than
TDRs reported as of December 31, 2021, annualized assessments would
have decreased by $52 million.
Alternatively, as an extreme and unlikely scenario, if all large
and highly complex banks had reported zero TDRs during a period when
overall risk in the banking industry was higher, such as December 31,
2011, the resulting underperforming assets ratio would have reduced
total deposit insurance assessment revenue by an annualized amount of
approximately $957 million. Between 2015 and 2019, if TDRs were zero,
the resulting underperforming assets ratio would have reduced total
deposit insurance assessment revenue by about $279 million annually, on
average.
Over time, however, large and highly complex banks will implement
ASU 2022-02 and begin to report modifications to borrowers experiencing
financial difficulties. As noted above, the effect on assessments will
depend on how the newly reported modifications compare to the TDRs that
would have been reported under the prior accounting standard. For
example, if all large and highly complex banks had reported
modifications to borrowers experiencing financial difficulty that were
25 percent greater than the TDRs reported as of December 31, 2021, the
impact on the underperforming assets ratio would have increased total
deposit insurance assessment revenue by an annualized amount of
approximately $30 million; if the modifications exceeded TDRs by 50
percent, annualized assessments would have increased by $65 million;
and if the modifications exceeded TDRs by 100 percent, annualized
assessments would have increased by $137 million.
The analysis presented above serves as an illustrative example of
potential effects of the final rule. The analysis does not estimate
potential future modifications to borrowers experiencing financial
difficulty or how those amounts, once reported, will compare to
previously reported TDRs for a few reasons. First, banks were granted
temporary relief from reporting TDRs that were modified due to the
COVID-19 pandemic, so recent reporting of TDRs is likely lower than it
may otherwise have been.\24\ Second, the amount of modifications or
restructurings made by large or highly complex banks vary based on
economic conditions and future economic conditions are uncertain.
Third, as commenters noted, a restructuring of a debt constitutes a TDR
if the creditor for economic or legal reasons related to the debtor's
financial difficulties grants a concession to the debtor that it would
not otherwise consider, while a modification to borrowers experiencing
financial difficulty is not evaluated based on whether or not a
concession has been granted. Finally, future Call Report revisions and
instructions on how modifications to borrowers experiencing financial
difficulties are required to be reported will affect the future
reported amount of modifications to borrowers experiencing financial
difficulty.
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\24\ On March 27, 2020, the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act) was signed into law. Section 4013
of the CARES Act, ``Temporary Relief From Troubled Debt
Restructurings,'' provided banks the option to temporarily suspend
certain requirements under U.S. GAAP related to TDRs to account for
the effects of COVID-19. Division N of the Consolidated
Appropriations Act, 2021 (Title V, subtitle C, section 541) was
signed into law on December 27, 2020, extending the provisions in
Section 4013 of the CARES Act to January 1, 2022. This relief
applied to certain loans modified between March 1, 2020 and January
1, 2022.
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With regard to the higher-risk assets ratio, the effect on
assessments paid by large and highly complex banks is likely to be more
muted. The assessment regulations define a higher-risk C&I or consumer
loan as a loan or refinance that meets certain risk criteria. The final
rule will exclude modifications to borrowers experiencing financial
difficulty from the definition of a refinance for purposes of the
higher-risk assets ratio. As a result, if a modification to a C&I or
consumer loan results in the classification of the loan as a TDR, under
the current regulations, or as a modification to borrowers experiencing
financial difficulty, under the final rule, a large or highly complex
bank will not have to re-evaluate whether the modified loan meets the
definition of a higher-risk asset.
For example, if a higher-risk C&I loan was subsequently modified as
a TDR or modification to borrowers experiencing
[[Page 64353]]
financial difficulty, it will not be considered a refinance and,
therefore, will continue to be considered a higher-risk asset.
Conversely, if a C&I loan that does not meet the definition of a
higher-risk asset was subsequently modified as a TDR or modification to
borrowers experiencing financial difficulty, it will not be considered
a refinance and, therefore, will not have to be re-evaluated to
determine if it meets the definition of a higher-risk asset. The FDIC
assumes that these possible outcomes are generally offsetting and this
aspect of the final rule will have minimal to no effect on deposit
insurance assessments for large and highly complex banks.
VI. Alternatives Considered
The FDIC considered two reasonable and possible alternatives as
described below. On balance, the FDIC believes the final rule will
determine deposit insurance assessment rates for large and highly
complex banks in the most appropriate, accurate, and straightforward
manner.
One alternative would be to require banks to continue to report
TDRs specifically for deposit insurance assessment purposes, even after
they have adopted CECL and ASU 2022-02. This alternative would maintain
consistency of the data used in the underperforming assets ratio and
higher-risk assets ratio with prior reporting periods. However, and as
one commenter noted, this alternative would impose additional reporting
burden on large and highly complex banks. This alternative would also
fail to recognize the potential usefulness of the new data on
modifications to borrowers experiencing financial difficulty.
Ultimately, the FDIC does not believe any benefits from continued
reporting of TDRs expressly for assessment purposes would justify the
cost to affected banks.
The FDIC also considered a second alternative: removing
restructured loans from the definition of underperforming assets
entirely and not incorporating the new data on modifications to
borrowers experiencing financial difficulty. Similar to the first
alternative, this second alternative would apply uniformly to all large
and highly complex banks, regardless of their early adoption status.
Both commenters supported this alternative. However, this alternative
fails to recognize that modifications to borrowers experiencing
financial difficulty are restructured loans and are a meaningful
indicator of credit risk throughout economic cycles that should be
included in credit quality measures such as the underperforming assets
ratio and the higher-risk assets ratio. Failure to capture this risk in
deposit insurance assessments for large and highly complex banks could
adversely affect the DIF.
The FDIC believes that the new modifications data required under
ASU 2022-02 will provide valuable information and would not impose
additional reporting burden. Incorporating this new data in place of
TDRs would be the most reasonable option to ensure that large and
highly complex banks are assessed fairly and accurately.
VII. Effective Date and Application Date
The FDIC is issuing this final rule with an effective date of
January 1, 2023, and applicable to the first quarterly assessment
period of 2023 (i.e., January 1 through March 31, 2023, with an invoice
payment date of June 30, 2023). Most institutions that have implemented
CECL, will adopt FASB's ASU 2022-02 in 2023, unless an institution
chooses to early adopt in 2022. Institutions (those with a calendar
year fiscal year) implementing CECL on January 1, 2023, will also
adopt, FASB's ASU 2022-02 at that time. Therefore, by the first quarter
of 2023, ASU 2022-02 also will be in effect for most, if not all, large
and highly complex banks. The FDIC believes that coordinating the
assessment system amendments to conform to the new accounting standards
will promote a more efficient transition and will result in affected
banks reporting their data in a consistent manner based on the correct
accounting concepts.
VIII. Administrative Law Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires an agency,
in connection with a final rule, to prepare and make available for
public comment a final regulatory flexibility analysis that describes
the impact of a final rule on small entities.\25\ However, a regulatory
flexibility analysis is not required if the agency certifies that the
final rule will not have a significant economic impact on a substantial
number of small entities. The U.S. Small Business Administration (SBA)
has defined ``small entities'' to include banking organizations with
total assets of less than or equal to $750 million.\26\ Certain types
of rules, such as rules relating to rates, corporate or financial
structures, or practices relating to such rates or structures, are
expressly excluded from the definition of ``rule'' for purposes of the
RFA.\27\ Because the final rule relates directly to the rates imposed
on IDIs for deposit insurance and to the deposit insurance assessment
system that measures risk and determines each bank's assessment rate,
the final rule is not subject to the RFA. Nonetheless, the FDIC is
voluntarily presenting information in this RFA section.
---------------------------------------------------------------------------
\25\ 5 U.S.C. 601 et seq.
\26\ The SBA defines a small banking organization as having $750
million or less in assets, where an organization's ``assets are
determined by averaging the assets reported on its four quarterly
financial statements for the preceding year.'' See 13 CFR 121.201
(as amended by 87 FR 18627, effective May 2, 2022). In its
determination, the SBA counts the receipts, employees, or other
measure of size of the concern whose size is at issue and all of its
domestic and foreign affiliates. See 13 CFR 121.103. Following these
regulations, the FDIC uses a covered entity's affiliated and
acquired assets, averaged over the preceding four quarters, to
determine whether the covered entity is ``small'' for the purposes
of RFA.
\27\ 5 U.S.C. 601.
---------------------------------------------------------------------------
Based on Call Report data as of June 30, 2022, the FDIC insures
4,780 IDIs, of which 3,394 are defined as small entities by the terms
of the RFA.\28\ The final rule, however, will apply only to
institutions with $10 billion or greater in total assets which, by
definition, do not meet the criteria to be considered small entities
for the purposes of the RFA. Therefore, no small entities will be
affected by the final rule.
---------------------------------------------------------------------------
\28\ FDIC Call Report data, June 30, 2022.
---------------------------------------------------------------------------
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) states that no agency may
conduct or sponsor, nor is the respondent required to respond to, an
information collection unless it displays a currently valid Office of
Management and Budget (OMB) control number.\29\ The FDIC's OMB control
numbers for its assessment regulations are 3064-0057, 3064-0151, and
3064-0179. The final rule does not create any new, or revise any of
these existing assessment information collections pursuant to the PRA
and consequently, no submissions in connection with these OMB control
numbers will be made to the OMB for review. However, the final rule
affects the agencies' current information collections for the Call
Report (FFIEC 031 and FFIEC 041, but not FFIEC 051). The agencies' OMB
control numbers for the Call Reports are: OCC OMB No. 1557-0081; Board
OMB No. 7100-0036; and FDIC OMB No. 3064-0052. The changes to the Call
Report forms and instructions will be addressed in a separate Federal
Register notice.
---------------------------------------------------------------------------
\29\ 44 U.S.C. 3501-3521.
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[[Page 64354]]
C. Riegle Community Development and Regulatory Improvement Act
Section 302(a) of the Riegle Community Development and Regulatory
Improvement Act of 1994 (RCDRIA) requires that the Federal banking
agencies, including the FDIC, in determining the effective date and
administrative compliance requirements of new regulations that impose
additional reporting, disclosure, or other requirements on IDIs,
consider, consistent with principles of safety and soundness and the
public interest, any administrative burdens that such regulations would
place on depository institutions, including small depository
institutions, and customers of depository institutions, as well as the
benefits of such regulations.\30\ In addition, section 302(b) of RCDRIA
requires new regulations and amendments to regulations that impose
additional reporting, disclosures, or other new requirements on IDIs
generally to take effect on the first day of a calendar quarter that
begins on or after the date on which the regulations are published in
final form, with certain exceptions, including for good cause.\31\
---------------------------------------------------------------------------
\30\ 12 U.S.C. 4802(a).
\31\ 12 U.S.C. 4802(b).
---------------------------------------------------------------------------
The final rule will not impose additional reporting, disclosure, or
other new requirements on insured depository institutions, including
small depository institutions, or on the customers of depository
institutions. Accordingly, section 302 of RCDRIA does not apply. The
FDIC invited comments regarding the application of RCDRIA in the
proposed rule, but did not receive comments on this topic.
Nevertheless, the requirements of RCDRIA have been considered in
setting the final effective date.
D. Plain Language
Section 722 of the Gramm-Leach-Bliley Act \32\ requires the Federal
banking agencies to use plain language in all proposed and final
rulemakings published in the Federal Register after January 1, 2000.
The FDIC invited comment regarding the use of plain language in the
proposed rule but did not receive any comments on this topic.
---------------------------------------------------------------------------
\32\ Public Law 106-102, section 722, 113 Stat. 1338, 1471
(1999), 12 U.S.C. 4809.
---------------------------------------------------------------------------
E. The Congressional Review Act
For purposes of the Congressional Review Act, the OMB makes a
determination as to whether a final rule constitutes a ``major''
rule.\33\ If a rule is deemed a ``major rule'' by the OMB, the
Congressional Review Act generally provides that the rule may not take
effect until at least 60 days following its publication.\34\
---------------------------------------------------------------------------
\33\ 5 U.S.C. 801 et seq.
\34\ 5 U.S.C. 801(a)(3).
---------------------------------------------------------------------------
The Congressional Review Act defines a ``major rule'' as any rule
that the Administrator of the Office of Information and Regulatory
Affairs of the OMB finds has resulted in or is likely to result in--(A)
an annual effect on the economy of $100,000,000 or more; (B) a major
increase in costs or prices for consumers, individual industries,
Federal, State, or Local government agencies or geographic regions; or
(C) significant adverse effects on competition, employment, investment,
productivity, innovation, or on the ability of United States-based
enterprises to compete with foreign-based enterprises in domestic and
export markets.\35\
---------------------------------------------------------------------------
\35\ 5 U.S.C. 804(2).
---------------------------------------------------------------------------
The OMB has determined that the final rule is a major rule for
purposes of the Congressional Review Act. As required by the
Congressional Review Act, the FDIC will submit the final rule and other
appropriate reports to Congress and the Government Accountability
Office for review.
List of Subjects in 12 CFR Part 327
Bank deposit insurance, Banks, Banking, Savings associations.
Authority and Issuance
For the reasons stated in the preamble, the Federal Deposit
Insurance Corporation amends 12 CFR part 327 as follows:
PART 327--ASSESSMENTS
0
1. The authority for 12 CFR part 327 continues to read as follows:
Authority: 12 U.S.C. 1813, 1815, 1817-19, 1821.
0
2. Amend appendix A to subpart A in section IV by:
0
a. In the entries for ``Balance Sheet Liquidity Ratio,'' ``Potential
Losses/Total Domestic Deposits (Loss Severity Measure),'' and ``Market
Risk Measure for Highly Complex Institutions,'' redesignating footnotes
5, 6, and 7 as footnotes 6, 7, and 8, respectively;
0
b. Redesignating footnotes 5, 6, and 7 as footnotes 6, 7, and 8 at the
end of the table;
0
c. Revising the entry for ``Credit Quality Measure''; and
0
d. Adding new footnote 5 at the end of the table.
The revision and addition read as follows:
Appendix A to Subpart A of Part 327--Method To Derive Pricing
Multipliers and Uniform Amount
* * * * *
IV. Description of Scorecard Measures
------------------------------------------------------------------------
Scorecard measures \1\ Description
------------------------------------------------------------------------
* * * * * * *
Credit Quality Measure....... The credit quality score is the higher of
the following two scores:
(1) Criticized and Classified Sum of criticized and classified items
Items/Tier 1 Capital and divided by the sum of Tier 1 capital and
Reserves \2\. reserves. Criticized and classified
items include items an institution or
its primary Federal regulator have
graded ``Special Mention'' or worse and
include retail items under Uniform
Retail Classification Guidelines,
securities, funded and unfunded loans,
other real estate owned (ORE), other
assets, and marked-to-market
counterparty positions, less credit
valuation adjustments.\4\ Criticized and
classified items exclude loans and
securities in trading books, and the
amount recoverable from the U.S.
Government, its agencies, or Government-
sponsored enterprises, under guarantee
or insurance provisions.
(2) Underperforming Assets/ Sum of loans that are 30 days or more
Tier 1 Capital and Reserves past due and still accruing interest,
\2\. nonaccrual loans, restructured loans \5\
(including restructured 1-4 family
loans), and ORE, excluding the maximum
amount recoverable from the U.S.
Government, its agencies, or government-
sponsored enterprises, under guarantee
or insurance provisions, divided by a
sum of Tier 1 capital and reserves.
[[Page 64355]]
* * * * * * *
------------------------------------------------------------------------
\1\ The FDIC retains the flexibility, as part of the risk-based
assessment system, without the necessity of additional notice-and-
comment rulemaking, to update the minimum and maximum cutoff values
for all measures used in the scorecard. The FDIC may update the
minimum and maximum cutoff values for the higher-risk assets to Tier 1
capital and reserves ratio in order to maintain an approximately
similar distribution of higher-risk assets to Tier 1 capital and
reserves ratio scores as reported prior to April 1, 2013, or to avoid
changing the overall amount of assessment revenue collected. 76 FR
10672, 10700 (February 25, 2011). The FDIC will review changes in the
distribution of the higher-risk assets to Tier 1 capital and reserves
ratio scores and the resulting effect on total assessments and risk
differentiation between banks when determining changes to the cutoffs.
The FDIC may update the cutoff values for the higher-risk assets to
Tier 1 capital and reserves ratio more frequently than annually. The
FDIC will provide banks with a minimum one quarter advance notice of
changes in the cutoff values for the higher-risk assets to Tier 1
capital and reserves ratio with their quarterly deposit insurance
invoice.
\2\ The applicable portions of the current expected credit loss
methodology (CECL) transitional amounts attributable to the allowance
for credit losses on loans and leases held for investment and added to
retained earnings for regulatory capital purposes pursuant to the
regulatory capital regulations, as they may be amended from time to
time (12 CFR part 3, 12 CFR part 217, 12 CFR part 324, 85 FR 61577
(Sept. 30, 2020), and 84 FR 4222 (Feb. 14, 2019)), will be removed
from the sum of Tier 1 capital and reserves.
* * * * * * *
\4\ A marked-to-market counterparty position is equal to the sum of the
net marked-to-market derivative exposures for each counterparty. The
net marked-to-market derivative exposure equals the sum of all
positive marked-to-market exposures net of legally enforceable netting
provisions and net of all collateral held under a legally enforceable
CSA plus any exposure where excess collateral has been posted to the
counterparty. For purposes of the Criticized and Classified Items/Tier
1 Capital and Reserves definition a marked-to-market counterparty
position less any credit valuation adjustment can never be less than
zero.
\5\ Restructured loans include troubled debt restructurings and
modifications to borrowers experiencing financial difficulty, as these
terms are defined in the glossary to the Call Report, as they may be
amended from time to time.
* * * * *
0
3. Amend appendix C to subpart A by:
0
a. In section I.A.2., under the heading ``Definitions,'' revising the
entry for ``Refinance''; and
0
b. In section I.A.3., revising the ``Refinance'' section preceding
section I.A.4.
The revisions read as follows:
Appendix C to Subpart A of Part 327--Description of Concentration
Measures
I. * * *
A. * * *
2. * * *
Definitions
* * * * *
Refinance
For purposes of a C&I loan, a refinance includes:
(a) Replacing an original obligation by a new or modified
obligation or loan agreement;
(b) Increasing the master commitment of the line of credit (but
not adjusting sub-limits under the master commitment);
(c) Disbursing additional money other than amounts already
committed to the borrower;
(d) Extending the legal maturity date;
(e) Rescheduling principal or interest payments to create or
increase a balloon payment;
(f) Releasing a substantial amount of collateral;
(g) Consolidating multiple existing obligations; or
(h) Increasing or decreasing the interest rate.
A refinance of a C&I loan does not include a modification or
series of modifications to a commercial loan other than as described
above or modifications to a commercial loan that would otherwise
meet this definition of refinance, but that result in the
classification of a loan as a troubled debt restructuring (TDR) or a
modification to borrowers experiencing financial difficulty, as
these terms are defined in the glossary of the Call Report
instructions, as they may be amended from time to time.
* * * * *
3. * * *
Refinance
For purposes of higher-risk consumer loans, a refinance
includes:
(a) Extending new credit or additional funds on an existing
loan;
(b) Replacing an existing loan with a new or modified
obligation;
(c) Consolidating multiple existing obligations;
(d) Disbursing additional funds to the borrower. Additional
funds include a material disbursement of additional funds or, with
respect to a line of credit, a material increase in the amount of
the line of credit, but not a disbursement, draw, or the writing of
convenience checks within the original limits of the line of credit.
A material increase in the amount of a line of credit is defined as
a 10 percent or greater increase in the quarter-end line of credit
limit; however, a temporary increase in a credit card line of credit
is not a material increase;
(e) Increasing or decreasing the interest rate (except as noted
herein for credit card loans); or
(f) Rescheduling principal or interest payments to create or
increase a balloon payment or extend the legal maturity date of the
loan by more than six months.
A refinance for this purpose does not include:
(a) A re-aging, defined as returning a delinquent, open-end
account to current status without collecting the total amount of
principal, interest, and fees that are contractually due, provided:
(i) The re-aging is part of a program that, at a minimum,
adheres to the re-aging guidelines recommended in the interagency
approved Uniform Retail Credit Classification and Account Management
Policy; \[12]\
(ii) The program has clearly defined policy guidelines and
parameters for re-aging, as well as internal methods of ensuring the
reasonableness of those guidelines and monitoring their
effectiveness; and
(iii) The bank monitors both the number and dollar amount of re-
aged accounts, collects and analyzes data to assess the performance
of re-aged accounts, and determines the effect of re-aging practices
on past due ratios;
(b) Modifications to a loan that would otherwise meet this
definition of refinance, but result in the classification of a loan
as a TDR or modification to borrowers experiencing financial
difficulty;
(c) Any modification made to a consumer loan pursuant to a
government program, such as the Home Affordable Modification Program
or the Home Affordable Refinance Program;
(d) Deferrals under the Servicemembers Civil Relief Act;
(e) A contractual deferral of payments or change in interest
rate that is consistent with the terms of the original loan
agreement (e.g., as allowed in some student loans);
(f) Except as provided above, a modification or series of
modifications to a closed-end consumer loan;
(g) An advance of funds, an increase in the line of credit, or a
change in the interest rate that is consistent with the terms of the
loan agreement for an open-end or revolving line of credit (e.g.,
credit cards or home equity lines of credit);
(h) For credit card loans:
(i) Replacing an existing card because the original is expiring,
for security reasons, or because of a new technology or a new
system;
(ii) Reissuing a credit card that has been temporarily suspended
(as opposed to closed);
(iii) Temporarily increasing the line of credit;
(iv) Providing access to additional credit when a bank has
internally approved a higher credit line than it has made available
to the customer; or
(v) Changing the interest rate of a credit card line when
mandated by law (such as in the case of the Credit CARD Act).
* * * * *
\[12]\ Among other things, for a loan to be considered for re-
aging, the following must
[[Page 64356]]
be true: (1) The borrower must have demonstrated a renewed
willingness and ability to repay the loan; (2) the loan must have
existed for at least nine months; and (3) the borrower must have
made at least three consecutive minimum monthly payments or the
equivalent cumulative amount.
* * * * *
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on October 18, 2022.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2022-22986 Filed 10-20-22; 11:15 am]
BILLING CODE 6714-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.