[Federal Register Volume 86, Number 36 (Thursday, February 25, 2021)]
[Rules and Regulations]
[Pages 11391-11404]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-03456]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AF65


Assessments, Amendments To Address the Temporary Deposit 
Insurance Assessment Effects of the Optional Regulatory Capital 
Transitions for Implementing the Current Expected Credit Losses 
Methodology

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The Federal Deposit Insurance Corporation is adopting 
amendments to the risk-based deposit insurance assessment system 
applicable to all large insured depository institutions (IDIs), 
including highly complex IDIs, to address the temporary deposit 
insurance assessment effects resulting from certain optional regulatory 
capital transition provisions relating to the implementation of the 
current expected credit losses (CECL) methodology. The final rule 
removes the double counting of a specified portion of the CECL 
transitional amount or the modified CECL transitional amount, as 
applicable (collectively, the CECL transitional amounts), in certain 
financial measures that are calculated using the sum of Tier 1 capital 
and reserves and that are used to determine assessment rates for large 
or highly complex IDIs. The final rule also adjusts the calculation of 
the loss severity measure to remove the double counting of a specified 
portion of the CECL transitional amounts for a large or highly complex 
IDI. This final rule does not affect regulatory capital or the 
regulatory capital relief provided in the form of transition provisions 
that allow banking organizations to phase in the effects of CECL on 
their regulatory capital ratios.

DATES: The final rule is effective April 1, 2021.

FOR FURTHER INFORMATION CONTACT: Scott Ciardi, Chief, Large Bank 
Pricing, (202) 898-7079 or <a href="/cdn-cgi/l/email-protection#abd8c8c2cad9cfc2ebcdcfc2c885ccc4dd"><span class="__cf_email__" data-cfemail="eb9888828a998f82ab8d8f8288c58c849d">[email protected]</span></a>; Ashley Mihalik, Chief, 
Banking and Regulatory Policy, (202) 898-3793 or <a href="/cdn-cgi/l/email-protection#66070b0f0e070a0f0d2600020f0548010910"><span class="__cf_email__" data-cfemail="e98884808188858082a98f8d808ac78e869f">[email protected]</span></a>; 
Nefretete Smith, Counsel, (202) 898-6851 or <a href="/cdn-cgi/l/email-protection#9df3f8fbeef0f4e9f5ddfbf9f4feb3faf2eb"><span class="__cf_email__" data-cfemail="1d73787b6e707469755d7b79747e337a726b">[email protected]</span></a>; Sydney 
Mayer, Senior Attorney, (202) 898-3669 or <a href="/cdn-cgi/l/email-protection#681b0509110d1a280e0c010b460f071e"><span class="__cf_email__" data-cfemail="4c3f212d35293e0c2a28252f622b233a">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Policy Objectives and Overview of Final Rule

    The Federal Deposit Insurance Act (FDI Act) requires that the FDIC 
establish a risk-based deposit insurance assessment system for insured 
depository institutions (IDIs).\1\ Consistent with this statutory 
requirement, the FDIC's objective in finalizing this rule is to ensure 
that IDIs are assessed in a manner that is fair and accurate. In 
particular, the primary objective of this final rule is to remove a 
double counting issue in several financial measures used to determine 
deposit insurance assessment rates for large or highly complex banks, 
which could result in a deposit insurance assessment rate for a large 
or highly complex bank that does not accurately reflect the bank's risk 
to the deposit insurance fund (DIF), all else equal.\2\
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    \1\ 12 U.S.C. 1817(b). As used in this final rule, the term 
``insured depository institution'' has the same meaning as it is 
used in section 3(c)(2) of the FDI Act, 12 U.S.C. 1813(c)(2). 
Pursuant to this requirement, the FDIC first adopted a risk-based 
deposit insurance assessment system effective in 1993 that applied 
to all IDIs. See 57 FR 45263 (Oct. 1, 1992). The FDIC implemented 
this assessment system with the goals of making the deposit 
insurance system fairer to well-run institutions and encouraging 
weaker institutions to improve their condition, and thus, promote 
the safety and soundness of IDIs.
    \2\ As used in this final rule, the term ``small bank'' is 
synonymous with ``small institution,'' the term ``large bank'' is 
synonymous with ``large institution,'' and the term ``highly complex 
bank'' is synonymous with ``highly complex institution,'' as the 
terms are defined in 12 CFR 327.8. For assessment purposes, a large 
bank is generally defined as an institution with $10 billion or more 
in total assets, a small bank is generally defined as an institution 
with less than $10 billion in total assets, and a highly complex 
bank 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(e), (f), and (g).
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    The final rule amends the assessment regulations to remove the 
double counting of a portion of the CECL transitional amounts, in 
certain financial measures used to determine deposit insurance 
assessment rates for large or highly complex banks. In particular, 
certain financial measures are calculated by summing Tier 1 capital, 
which includes the CECL transitional amounts, and reserves, which 
already reflects the implementation of CECL. As a result, a portion of 
the CECL transitional amounts is being double counted in these 
measures, which in turn affects assessment rates for large or highly 
complex banks. The final rule also adjusts the calculation of the loss 
severity measure to remove the double counting of a portion of the CECL 
transitional amounts for large or highly complex banks.
    This final rule amends the deposit insurance system applicable to 
large banks and highly complex banks only, and it does not affect 
regulatory capital or the regulatory capital relief provided in the 
form of transition provisions that allow banking organizations to phase 
in the effects of CECL on their regulatory capital ratios.\3\ 
Specifically, in calculating another measure used to determine 
assessment rates for all IDIs, the Tier 1 leverage ratio, the FDIC will 
continue to apply the CECL regulatory capital transition provisions, 
consistent with the regulatory capital relief provided to address 
concerns that despite adequate capital planning, unexpected economic 
conditions at the time of CECL adoption could result in higher-than-
anticipated increases in allowances.\4\
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    \3\ Banking organizations subject to the capital rule include 
national banks, state member banks, state nonmember banks, savings 
associations, and top-tier bank holding companies and savings and 
loan holding companies domiciled in the United States not subject to 
the Federal Reserve Board's Small Bank Holding Company Policy 
Statement (12 CFR part 225, appendix C), but exclude certain savings 
and loan holding companies that are substantially engaged in 
insurance underwriting or commercial activities or that are estate 
trusts, and bank holding companies and savings and loan holding 
companies that are employee stock ownership plans. See 12 CFR part 3 
(Office of the Comptroller of the Currency)); 12 CFR part 217 
(Board); 12 CFR part 324 (FDIC). See also 84 FR 4222 (Feb. 14, 2019) 
and 85 FR 61577 (Sept. 30, 2020).
    \4\ See 84 FR 4225 (Feb. 14, 2019).
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    The FDIC did not receive any comment letters in response to the 
proposal and is adopting the proposed rule as final without change. 
Under this final rule, amendments to the deposit insurance assessment 
system and changes to regulatory reporting requirements will be 
applicable only while the regulatory capital relief described above, or 
any potential future amendment that may affect the

[[Page 11392]]

calculation of CECL transitional amounts and the double counting of 
these amounts for deposit insurance assessment purposes, is reflected 
in the regulatory reports of banks.

II. Background

A. Deposit Insurance Assessments

    Pursuant to Section 7 of the FDI Act, the FDIC has established a 
risk-based assessment system in Part 327 of its Rules and 
Regulations.\5\ In 2006, the FDIC adopted a final rule that created 
different risk-based assessment systems for large IDIs and small IDIs 
that combined supervisory ratings with other risk measures to 
differentiate risk and determine assessment rates.\6\ In 2011, the FDIC 
amended the risk-based assessment system applicable to large IDIs to, 
among other things, better capture risk at the time the institution 
assumes the risk, to better differentiate risk among large IDIs during 
periods of good economic and banking conditions based on how they would 
fare during periods of stress or economic downturns, and to better take 
into account the losses that the FDIC may incur if a large IDI 
fails.\7\
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    \5\ 12 CFR part 327.
    \6\ See 71 FR 69282 (Nov. 30, 2006).
    \7\ See 76 FR 10672 (Feb. 25, 2011).
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    The FDIC charges all IDIs an assessment amount for deposit 
insurance equal to the IDI's deposit insurance assessment base 
multiplied by its risk-based assessment rate.\8\ An IDI's assessment 
base and assessment rate are determined each quarter based on 
supervisory ratings and information collected in 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.\9\
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    \8\ See 12 CFR 327.3(b)(1).
    \9\ See 12 CFR 327.5.
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    An IDI's assessment rate is calculated using different methods 
based on whether the IDI is a small, large, or highly complex bank.\10\ 
A large or highly complex bank is assessed using a scorecard approach 
that combines CAMELS ratings and certain forward-looking financial 
measures to assess the risk that the bank poses to the DIF.\11\ 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 IDIs and another applies to highly complex banks. Both 
scorecards use quantitative financial measures that are useful in 
predicting a large or highly complex bank's long-term performance.\12\
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    \10\ See 12 CFR 327.16(a) and (b).
    \11\ See 12 CFR 327.16(b); see also 76 FR 10672 (Feb. 25, 2011) 
and 77 FR 66000 (Oct. 31, 2012).
    \12\ See 76 FR 10688. The FDIC uses a different scorecard for 
highly complex IDIs because those institutions are structurally and 
operationally complex, or pose unique challenges and risks in case 
of failure. 76 FR 10695.
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    As described in more detail below, the FDIC is finalizing 
amendments to the assessment regulations to remove the double counting 
of a specified portion of the CECL transitional amounts in the 
calculation of the loss severity measure and certain other financial 
measures that are calculated by summing Tier 1 capital and reserves, 
which are used to determine assessment rates for large or highly 
complex banks.

B. The Current Expected Credit Losses Methodology

    In 2016, the Financial Accounting Standards Board (FASB) issued 
Accounting Standards Update (ASU) No. 2016-13, Financial Instruments--
Credit Losses, Topic 326, Measurement of Credit Losses on Financial 
Instruments.\13\ The ASU resulted in significant changes to credit loss 
accounting under U.S. generally accepted accounting principles (GAAP). 
The revisions to credit loss accounting under GAAP included the 
introduction of CECL, which replaces the incurred loss methodology for 
financial assets measured at amortized cost. For these assets, CECL 
requires banking organizations to recognize lifetime expected credit 
losses and to incorporate reasonable and supportable forecasts in 
developing the estimate of lifetime expected credit losses, while also 
maintaining the current requirement that banking organizations consider 
past events and current conditions.
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    \13\ ASU 2016-13 covers measurement of credit losses on 
financial instruments and includes three subtopics within Topic 326: 
(i) Subtopic 326-10 Financial Instruments--Credit Losses--Overall; 
(ii) Subtopic 326-20: Financial Instruments--Credit Losses--Measured 
at Amortized Cost; and (iii) Subtopic 326-30: Financial 
Instruments--Credit Losses--Available-for-Sale Debt Securities.
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    CECL allowances cover a broader range of financial assets than the 
allowance for loan and lease losses (ALLL) under the incurred loss 
methodology. Under the incurred loss methodology, the ALLL generally 
covers credit losses on loans held for investment and lease financing 
receivables, with additional allowances for certain other extensions of 
credit and allowances for credit losses on certain off-balance sheet 
credit exposures (with the latter allowances presented as 
liabilities).\14\ These exposures will be within the scope of CECL. In 
addition, CECL applies to credit losses on held-to-maturity (HTM) debt 
securities. ASU 2016-13 also introduces new requirements for available-
for-sale (AFS) debt securities. The new accounting standard requires 
that a banking organization recognize credit losses on individual AFS 
debt securities through credit loss allowances, rather than through 
direct write-downs, as is currently required under U.S. GAAP. The 
credit loss allowances attributable to debt securities are separate 
from the credit loss allowances attributable to loans and leases.
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    \14\ ``Other extensions of credit'' includes trade and 
reinsurance receivables, and receivables that relate to repurchase 
agreements and securities lending agreements. ``Off-balance sheet 
credit exposures'' includes off-balance sheet credit exposures not 
accounted for as insurance, such as loan commitments, standby 
letters of credit, and financial guarantees. The FDIC notes that 
credit losses for off-balance sheet credit exposures that are 
unconditionally cancellable by the issuer are not recognized under 
CECL.
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C. The 2019 CECL Rule

    Upon adoption of CECL, a banking organization will record a one-
time adjustment to its credit loss allowances as of the beginning of 
its fiscal year of adoption equal to the difference, if any, between 
the amount of credit loss allowances required under the incurred loss 
methodology and the amount of credit loss allowances required under 
CECL. A banking organization's implementation of CECL will affect its 
retained earnings, deferred tax assets (DTAs), allowances, and, as a 
result, its regulatory capital ratios.
    In recognition of the potential for the implementation of CECL to 
affect regulatory capital ratios, on February 14, 2019, the FDIC, the 
Office of the Comptroller of the Currency (OCC), and the Board of 
Governors of the Federal Reserve System (Board) (collectively, the 
agencies) issued a final rule that revised certain regulations, 
including the agencies' regulatory capital regulations (capital 
rule),\15\ to account for the aforementioned changes to credit loss 
accounting under GAAP, including CECL (2019 CECL rule).\16\ The 2019 
CECL rule includes a transition provision that allows banking 
organizations to phase in over a three-year period the day-one adverse 
effects of CECL on their regulatory capital ratios.
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    \15\ 12 CFR part 3 (OCC); 12 CFR part 217 (Board); 12 CFR part 
324 (FDIC).
    \16\ 84 FR 4222 (Feb. 14, 2019).

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[[Page 11393]]

D. The 2020 CECL Rule

    As part of the efforts to address the disruption of economic 
activity in the United States caused by the spread of coronavirus 
disease 2019 (COVID-19), on March 31, 2020, the agencies adopted a 
second CECL transition provision through an interim final rule.\17\ The 
agencies subsequently adopted a final rule (2020 CECL rule) on 
September 30, 2020, that is consistent with the interim final rule, 
with some clarifications and adjustments related to the calculation of 
the transition and the eligibility criteria for using the 2020 CECL 
transition provision.\18\ The 2020 CECL rule provides banking 
organizations that adopt CECL for purposes of GAAP (as in effect 
January 1, 2020), for a fiscal year that begins during the 2020 
calendar year, the option to delay for up to two years an estimate of 
CECL's effect on regulatory capital, followed by a three-year 
transition period (i.e., a five-year transition period in total).\19\ 
The 2020 CECL rule does not replace the three-year transition provision 
in the 2019 CECL rule, which remains available to any banking 
organization at the time that it adopts CECL.\20\
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    \17\ 85 FR 17723 (Mar. 31, 2020).
    \18\ See 85 FR 61577 (Sept. 30, 2020).
    \19\ A banking organization that is required to adopt CECL under 
GAAP in the 2020 calendar year, but chooses to delay use of CECL for 
regulatory reporting in accordance with section 4014 of the 
Coronavirus Aid Relief, and Economic Security Act (CARES Act), is 
also eligible for the 2020 CECL transition provision. The CARES Act 
(Pub. L. 116-136, 4014, 134 Stat. 281 (March 27, 2020)) provides 
banking organizations optional temporary relief from complying with 
CECL ending on the earlier of (1) the termination date of the 
current national emergency, declared by the President on March 13, 
2020 under the National Emergencies Act (50 U.S.C. 1601 et seq.) 
concerning COVID-19; or (2) December 31, 2020. If a banking 
organization chooses to revert to the incurred loss methodology 
pursuant to the CARES Act in any quarter in 2020, the banking 
organization would not apply any transitional amounts in that 
quarter but would be allowed to apply the transitional amounts in 
subsequent quarters when the banking organization resumes use of 
CECL. The Consolidated Appropriations Act, 2021 (Pub. L. 116-260 
(Dec. 27, 2020)) extended the optional temporary relief from 
complying with CECL afforded under the CARES Act, with an end date 
on the earlier of (1) the first day of the fiscal year of the IDI, 
bank holding company, or any affiliate thereof that begins after the 
date on which the national emergency concerning the COVID-19 
outbreak declared by the President on March 13, 2020 under the 
National Emergencies Act (50 U.S.C. 1601 et seq.) terminates; or (2) 
January 1, 2022.
    \20\ See 85 FR 61578 (Sept. 30, 2020).
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E. Double Counting of a Portion of the CECL Transitional Amounts in 
Certain Financial Measures Used To Determine Assessments for Large or 
Highly Complex Banks

    An increase in a banking organization's allowances, including those 
estimated under CECL, generally will reduce the banking organization's 
earnings or retained earnings, and therefore, its Tier 1 capital. For 
banks electing the 2019 CECL rule, the CECL transitional amount is the 
difference between the closing balance sheet amount of retained 
earnings for the fiscal year-end immediately prior to the bank's 
adoption of CECL (pre-CECL amount) and the bank's balance sheet amount 
of retained earnings as of the beginning of the fiscal year in which it 
adopts CECL (post-CECL amount). For banks electing the 2020 CECL rule 
transition provision, retained earnings are increased for regulatory 
capital calculation purposes by a modified CECL transitional amount 
that is adjusted to reflect changes in retained earnings due to CECL 
that occur during the first two years of the five-year transition 
period. Under the 2020 CECL rule, the change in retained earnings due 
to CECL is calculated by taking the change in reported adjusted 
allowances for credit losses (AACL) \21\ relative to the first day of 
the fiscal year in which CECL was adopted and applying a scaling 
multiplier of 25 percent during the first two years of the transition 
period. The resulting amount is added to the CECL transitional amount 
described above. Hence, the modified CECL transitional amount for banks 
electing the 2020 CECL rule is calculated on a quarterly basis during 
the first two years of the transition period. The bank reflects that 
modified CECL transitional amount, which includes 100 percent of the 
day-one impact of CECL on retained earnings plus a portion of the 
difference between AACL reported in the most recent regulatory report 
and AACL as of the beginning of the fiscal year that the banking 
organization adopts CECL, in the transitional amount applied to 
retained earnings in regulatory capital calculations.\22\
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    \21\ The 2019 CECL rule defined a new term for regulatory 
capital purposes, adjusted allowances for credit losses (AACL). The 
meaning of the term AACL for regulatory capital purposes is 
different from the meaning of the term allowances of credit losses 
(ACL) used in applicable accounting standards. The term allowance 
for credit losses as used by the FASB in ASU 2016-13 applies to both 
financial assets measured at amortized cost and AFS debt securities. 
In contrast, the AACL definition includes only those allowances that 
have been established through a charge against earnings or retained 
earnings. Under the 2019 CECL rule, the term AACL, rather than ALLL, 
applies to a banking organization that has adopted CECL.
    \22\ See 85 FR 61580 (Sept. 30, 2020).
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    For banks electing the 2020 CECL rule transition provision that 
enter the third year of their transition period and for banks electing 
the three-year 2019 CECL rule transition provision, banks must 
calculate the transitional amount to phase into their retained earnings 
for purposes of their regulatory capital calculations over a three-year 
period. For banks electing the 2019 CECL rule, the CECL transitional 
amount is the difference between the pre-CECL amount of retained 
earnings and the post-CECL amount of retained earnings. For banks 
electing the 2020 CECL rule that enter the third year of their 
transition, the modified CECL transitional amount is the difference 
between the bank's AACL at the end of the second year of the transition 
period and its AACL as of the beginning of the fiscal year of CECL 
adoption multiplied by 25 percent plus the CECL transitional amount 
described above. The CECL transitional amount or, at the end of the 
second year of the transition period for banks electing the 2020 CECL 
rule, the modified CECL transitional amount, is fixed and must be 
phased in over the three-year transition period or the last three years 
of the transition period, respectively, on a straight-line basis, 25 
percent in the first year (or third year for banks electing the 2020 
CECL rule), and an additional 25 percent of the transitional amount 
over each of the next two years.\23\ At the beginning of the sixth year 
for banks electing the 2020 CECL rule, or the beginning of the fourth 
year for banks electing the 2019 CECL rule, the electing bank would 
have completely reflected in regulatory capital the day-one effects of 
CECL (plus, for banks electing the 2020 CECL rule, an estimate of 
CECL's effect on regulatory capital, relative to the

[[Page 11394]]

incurred loss methodology's effect on regulatory capital, during the 
first two years of CECL adoption).\24\
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    \23\ Thus, when calculating regulatory capital, a bank electing 
the 2019 CECL rule transition provision would increase the retained 
earnings reported on its balance sheet by the applicable portion of 
its CECL transitional amount, i.e., 75 percent of its CECL 
transitional amount during the first year of the transition period, 
50 percent of its CECL transitional amount during the second year of 
the transition period, and 25 percent of its CECL transitional 
amount during the third year of the transition period. A bank 
electing the 2020 CECL rule transition provision would increase the 
retained earnings reported on its balance sheet by the applicable 
portion of its modified CECL transitional amount, i.e., 100 percent 
of its modified CECL transitional amount during the first and second 
years of the transition period, 75 percent of its CECL modified 
transitional amount during the third year of the transition period, 
50 percent of its modified CECL transitional amount during the 
fourth year of the transition period, and 25 percent of its CECL 
transitional amount during the fifth year of the transition period.
    \24\ See 84 FR 4228 (Feb. 14, 2019) and 85 FR 61580 (Sept. 30, 
2020).
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    Certain financial measures that are used in the scorecard to 
determine assessment rates for large or highly complex banks are 
calculated using both Tier 1 capital and reserves. Tier 1 capital is 
reported in Call Report Schedule RC-R, Part I, item 26, and for banks 
that elect either the three-year transition provision contained in the 
2019 CECL rule or the five-year transition provision contained in the 
2020 CECL rule, Tier 1 capital includes (due to adjustments to the 
amount of retained earnings reported on the balance sheet) the 
applicable portion of the CECL transitional amount (or modified CECL 
transitional amount). For deposit insurance assessment purposes, 
reserves are calculated using the amount reported in Call Report 
Schedule RC, item 4.c, ``Allowance for loan and lease losses.'' For all 
banks that have adopted CECL, this Schedule RC line item reflects the 
allowance for credit losses on loans and leases.\25\
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    \25\ The allowance for credit losses on loans and leases held 
for investment also is reported in item 7, column A, of Call Report 
Schedule RI-B, Part II, Changes in Allowances for Credit Losses.
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    The issue of double counting arises in certain financial measures 
used to determine assessment rates for large or highly complex banks 
that are calculated using both Tier 1 capital and reserves because the 
allowance for credit losses on loans and leases is included during the 
transition period in both reserves and, as a portion of the CECL or 
modified CECL transitional amount, Tier 1 capital. For banks that elect 
either the three-year transition provision contained in the 2019 CECL 
rule or the five-year transition provision contained in the 2020 CECL 
rule, the CECL transitional amounts, as defined in section 301 of the 
regulatory capital rules, additionally include the effect on retained 
earnings, net of tax effect, of establishing allowances for credit 
losses in accordance with the CECL methodology on HTM debt securities, 
other financial assets measured at amortized cost, and off-balance 
sheet credit exposures as of the beginning of the fiscal year of 
adoption (plus, for banks electing the 2020 CECL rule, the change 
during the first two years of the transition period in reported AACLs 
for HTM debt securities, other financial assets measured at amortized 
cost, and off-balance sheet credit exposures relative to the balances 
of these AACLs as of the beginning of the fiscal year of CECL adoption 
multiplied by 25 percent). The applicable portions of the CECL 
transitional amounts attributable to allowances for credit losses on 
HTM debt securities, other financial assets measured at amortized cost, 
and off-balance sheet credit exposures are included in Tier 1 capital 
only and are not double counted with reserves for deposit insurance 
assessment purposes.
    The CECL effective dates assigned by ASU 2016-13 as most recently 
amended by ASU No. 2019-10, the optional temporary relief from 
complying with CECL afforded by the CARES Act and as extended by the 
Consolidated Appropriations Act, 2021, and the transitions provided for 
under the 2019 CECL rule and 2020 CECL rule, provide that all banks 
will have completely reflected in regulatory capital the day-one 
effects of CECL (plus, if applicable, an estimate of CECL's effect on 
regulatory capital, relative to the incurred loss methodology's effect 
on regulatory capital, during the first two years of CECL adoption) by 
December 31, 2026. As a result, and as discussed below, the amendments 
to the deposit insurance assessment system and changes to reporting 
requirements pursuant to this final rule will be applicable only while 
the temporary regulatory capital relief described above, or any 
potential future amendment that may affect the calculation of CECL 
transitional amounts and the double counting of these amounts for 
deposit insurance assessment purposes, is reflected in the regulatory 
reports of banks.

F. The Proposed Rule

    On December 7, 2020, the FDIC published in the Federal Register a 
notice of proposed rulemaking (the proposed rule, or proposal) \26\ 
that would amend the risk-based deposit insurance assessment system 
applicable to all large IDIs, including highly complex IDIs, to address 
the temporary deposit insurance assessment effects resulting from 
certain optional regulatory capital transition provisions relating to 
the implementation of the CECL methodology. To address these temporary 
deposit insurance assessment effects, in calculating certain measures 
used in the scorecard for determining deposit insurance assessment 
rates for large or highly complex banks, the FDIC proposed to remove 
the applicable portions of the CECL transitional amounts added to 
retained earnings for regulatory capital purposes and attributable to 
the allowance for credit losses on loans and leases held for investment 
under the transitions provided for under the 2019 and 2020 CECL rules. 
Specifically, in certain scorecard measures which are calculated using 
the sum of Tier 1 capital and reserves, the FDIC proposed to remove a 
specified portion of the CECL transitional amount (or modified CECL 
transitional amount) that is added to retained earnings for regulatory 
capital purposes when determining deposit insurance assessment rates. 
The FDIC also proposed to adjust the calculation of the loss severity 
measure to remove the double counting of a specified portion of the 
CECL transitional amounts for a large or highly complex bank.
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    \26\ 85 FR 78794 (Dec. 7, 2020).
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    The FDIC did not receive any comment letters in response to the 
proposal and is adopting the proposed rule as final without change.

III. The Final Rule

A. Summary

    As proposed, in certain scorecard measures which are calculated 
using the sum of Tier 1 capital and reserves, the FDIC will remove a 
specified portion of the CECL transitional amounts that is added to 
retained earnings for regulatory capital purposes when determining 
deposit insurance assessment rates. The FDIC also will adjust the 
calculation of the loss severity measure to remove the double counting 
of a specified portion of the CECL transitional amounts for a large or 
highly complex bank.
    Absent the adjustments to the calculation of certain financial 
measures in the large or highly complex bank scorecards under this 
final rule, the inclusion of the applicable portions of the CECL 
transitional amounts added to retained earnings for regulatory capital 
purposes and attributable to the allowance for credit losses on loans 
and leases held for investment in regulatory capital and the 
implementation of CECL in calculating reserves would result in 
temporary double counting of a portion of the CECL transitional amounts 
in select financial measures used to determine assessment rates for 
large or highly complex banks. For example, in the denominator of the 
higher-risk assets to Tier 1 capital and reserves ratio, the applicable 
portions of the CECL transitional amounts added to retained earnings 
for regulatory capital purposes and attributable to the allowance for 
credit losses on loans and leases held for investment would be included 
in Tier 1 capital, and these portions also would be reflected in the 
calculation of reserves using the allowance amount reported in Call 
Report Schedule RC, item 4.c. If left

[[Page 11395]]

uncorrected, this temporary double counting could result in a deposit 
insurance assessment rate for a large or highly complex bank that does 
not accurately reflect the bank's risk to the DIF, all else equal.
    In the following simplified, stylized example, illustrated in Table 
1 below, consider a hypothetical large bank that has a CECL effective 
date of January 1, 2020, and elects a five-year transition.\27\ On the 
closing balance sheet date immediately prior to adopting CECL (i.e., 
December 31, 2019), the electing bank has $1 million of ALLL and $10 
million of Tier 1 capital. On the opening balance sheet date 
immediately after adopting CECL (i.e., January 1, 2020), the electing 
bank has $1.2 million of allowances for credit losses, of which the 
entire $1.2 million qualifies as AACL for regulatory capital purposes 
and is attributable to the allowance for credit losses on loans and 
leases held for investment.\28\ The bank would recognize the adoption 
of CECL as of January 1, 2020, by recording an increase in its 
allowances for credit losses, and in its AACL for regulatory capital 
purposes, of $200,000, with a reduction in beginning retained earnings 
of $200,000, which flows through and results in Tier 1 capital of $9.8 
million. For each of the quarterly reporting periods in year 1 of the 
five-year transition period (i.e., 2020), the electing bank would 
increase the retained earnings reported on its balance sheet by 
$200,000 for purposes of calculating its regulatory capital ratios, 
resulting in an increase in its Tier 1 capital of $200,000 to $10 
million, all else equal.\29\
---------------------------------------------------------------------------

    \27\ This stylized example is included to illustrate the effect 
of the final rule and omits the effects of deferred tax assets on 
regulatory capital calculations, which are addressed in the 
agencies' capital rule, the 2019 CECL rule, and the 2020 CECL rule. 
The example reflects the first-quarter 2020 application by a 
hypothetical large bank (with no purchased credit-deteriorated 
assets) that has adopted the five-year CECL transition under the 
2020 CECL rule and assumes that the full amount of the CECL 
transitional amount is attributable to the allowance for credit 
losses on loans and leases. The example does not reflect any changes 
over the course of the first quarterly reporting period in year 1 
(i.e., no changes in the amounts reported on the bank's balance 
sheet between January 1 and March 31, 2020, the end of the reporting 
period for the first quarter). As a consequence, the example bank's 
modified CECL transitional amount as of March 31, 2020 equals its 
CECL transitional amount. See 12 CFR part 3 (OCC); 12 CFR part 217 
(Board); 12 CFR part 324 (FDIC). See also 84 FR 4222 (Feb. 14, 2019) 
and 85 FR 61577 (Sept. 30, 2020).
    \28\ While the CECL transitional amount is calculated using the 
difference between the closing balance sheet amount of retained 
earnings for the fiscal year-end immediately prior to a bank's 
adoption of CECL and the balance sheet amount of retained earnings 
as of the beginning of the fiscal year in which the bank adopts 
CECL, the FDIC calculates financial measures used to determine 
deposit insurance assessment rates using data reported as of each 
quarter end.
    \29\ Under the 2019 CECL rule, when calculating regulatory 
capital ratios during the first year of an electing bank's CECL 
adoption date, the bank must phase in 25 percent of the transitional 
amounts. The bank would phase in an additional 25 percent of the 
transitional amounts over each of the next two years so that the 
bank would have phased in 75 percent of the day-one adverse effects 
of adopting CECL during year three. At the beginning of the fourth 
year, the bank would have completely reflected in regulatory capital 
the day-one effects of CECL. Under the 2020 CECL rule, the modified 
CECL transitional amount is calculated on a quarterly basis during 
the first two years of the transition period. See 12 CFR part 3 
(OCC); 12 CFR part 217 (Board); 12 CFR part 324 (FDIC). See also 84 
FR 4222 (Feb. 14, 2019) and 85 FR 61577 (Sept. 30, 2020).
---------------------------------------------------------------------------

    In this example, in determining the hypothetical large bank's 
deposit insurance assessment rate, the bank's Tier 1 capital of $10 
million would include the $200,000 addition to the bank's reported 
retained earnings due to the CECL transition (entirely attributable to 
the allowance for credit losses on loans and leases), and its reserves 
would equal $1.2 million, the entire amount of which is attributable to 
the allowance for credit losses on loans and leases held for 
investment. Its combined Tier 1 capital and reserves would equal $11.2 
million ($10 million plus $1.2 million), reflecting double counting of 
the $200,000 applicable portion of the bank's CECL transitional amount 
attributable to the allowance for credit losses on loans and 
leases.\30\
---------------------------------------------------------------------------

    \30\ In this stylized example, the entirety of the CECL 
transitional amount is attributable to the allowance for credit 
losses on loans and leases and it equals the modified CECL 
transitional amount during the first quarter of the transition 
period. The applicable portion of the CECL transitional amounts is 
the amount that is double counted in certain financial measures used 
to determine deposit insurance assessment rates and that the FDIC 
will remove from those financial measures. However, CECL 
transitional amounts may also include amounts attributable to 
allowances for credit losses under CECL on HTM debt securities, 
other financial assets measured at amortized cost, and off-balance 
sheet credit exposures. Under the final rule, in determining a large 
or highly complex bank's deposit insurance assessment rate, the FDIC 
will continue to include in Tier 1 capital the applicable portion of 
any CECL transitional amounts attributable to allowances for credit 
losses on items other than loans and leases held for investment.
---------------------------------------------------------------------------

    Under the final rule, for purposes of calculating assessments for 
large or highly complex banks, the FDIC would subtract $200,000 from 
the denominator of financial measures that sum Tier 1 capital and 
reserves, since the amount of $200,000 is incorporated in both Tier 1 
capital (as the applicable portion of the CECL transitional amount in 
year one of the five-year transition period) and reserves in the 
denominator. The bank's adjusted Tier 1 capital and reserves would 
equal $11 million. The FDIC also would adjust the calculation of the 
loss severity measure by $200,000, as described below.

  Table 1--Stylized Example \1\ of First-Quarter Application of a Five-
   Year CECL Transition in Calculating Tier 1 Capital and Reserves for
                  Deposit Insurance Assessment Purposes
------------------------------------------------------------------------
         In thousands           Dec. 31, 2019         Jan. 1, 2020
------------------------------------------------------------------------
Reserves.....................  $1,000 (ALLL)..  $1,200 (AACL).
Tier 1 Capital...............  $10,000........  $10,000.
Tier 1 Capital and Reserves    $11,000........  $11,200.
 (absent final rule).
Applicable Portion of the      ...............  $200.
 CECL Transitional Amount.
Tier 1 Capital and Reserves    ...............  $11,000.
 (under final rule).
------------------------------------------------------------------------
\1\ This stylized example reflects the first-quarter application of a
  hypothetical bank that has adopted a five-year CECL transition under
  the 2020 CECL rule and assumes that the full amount of the CECL
  transitional amount is attributable to the allowance for credit losses
  on loans and leases. The example does not reflect any changes over the
  course of the first quarter of 2020 (i.e., no changes in the amounts
  reported on the bank's balance sheet between January 1 and March 31,
  2020, the end of the reporting period for the first quarter). As a
  consequence, the bank's modified CECL transitional amount as of March
  31, 2020, equals its CECL transitional amount. This stylized example
  omits the effects of deferred tax assets, which are addressed in the
  agencies' capital rule, the 2019 CECL rule, and the 2020 CECL rule.

    The final rule amends the deposit insurance system applicable to 
large banks and highly complex banks only, and does not affect 
regulatory capital or the regulatory capital relief provided under the 
2019 CECL rule or 2020 CECL

[[Page 11396]]

rule.\31\ The FDIC will continue the application of the transition 
provisions provided for under the 2019 and 2020 CECL rules to the Tier 
1 leverage ratio used in determining deposit insurance assessment rates 
for all IDIs.
---------------------------------------------------------------------------

    \31\ See 12 CFR part 3 (OCC); 12 CFR part 217 (Board); 12 CFR 
part 324 (FDIC). See also 84 FR 4222 (Feb. 14, 2019) and 85 FR 61577 
(Sept. 30, 2020).
---------------------------------------------------------------------------

    Temporary changes to the Call Report forms and instructions are 
required to implement the amendments to the assessment system to remove 
the double counting under the final rule. These changes are being 
effectuated in coordination with the other member entities of the 
Federal Financial Institutions Examination Council (FFIEC).\32\ Changes 
to regulatory reporting requirements pursuant to this final rule will 
be required only while the regulatory capital relief is reflected in 
the regulatory reports of banks.
---------------------------------------------------------------------------

    \32\ As discussed in the section on the Paperwork Reduction Act 
below, the agencies published a joint notice and request for comment 
(85 FR 82580 (Dec. 18, 2020)) requesting one additional temporary 
item on the Call Report (FFIEC 031 and FFIEC 041 only) to make the 
adjustments described below.
---------------------------------------------------------------------------

B. Adjustments to Certain Measures Used in the Scorecard Approach for 
Determining Assessment Rates for Large or Highly Complex Banks

    Under the final rule, the FDIC will adjust the calculations of 
certain financial measures used to determine deposit insurance 
assessment rates for large or highly complex banks to remove the 
applicable portions of the CECL transitional amounts added to retained 
earnings that is attributable to the allowance for credit losses on 
loans and leases held for investment. The FDIC is removing this part of 
the CECL transitional amounts because, for large or highly complex 
banks that have adopted CECL, the measure of reserves used in the 
scorecard is the allowance for credit losses on loans and leases 
reported in Call Report Schedule RC, item 4.c.
    This amount, which will be reported in a new line item in Schedule 
RC-O only on the FFIEC 031 and FFIEC 041 versions of the Call Report, 
will be removed from scorecard measures that are calculated using the 
sum of Tier 1 capital and reserves, as described in more detail below. 
The FDIC also will adjust the calculation of the loss severity measure 
to remove the double counting by removing the applicable portions of 
the CECL transitional amounts added to retained earnings for regulatory 
capital purposes and attributable to the allowance for credit losses on 
loans and leases held for investment for large or highly complex banks.
    While the FDIC recognizes that by the April 1, 2021, effective date 
for this final rule, numerous large or highly complex banks will have 
implemented CECL and many will have elected the transition provided 
under either the 2019 CECL rule or 2020 CECL rule, the FDIC is not 
making adjustments to prior quarterly assessments.
1. Credit Quality Measure
    The score for the credit quality measure, applicable to both large 
banks and highly complex banks, is the greater of (1) the ratio of 
criticized and classified items to Tier 1 capital and reserves score or 
(2) the ratio of underperforming assets to Tier 1 capital and reserves 
score.\33\ The double counting results in lower ratios and a credit 
quality measure that reflects less risk than a bank actually poses to 
the DIF. Under the final rule, the FDIC is adjusting the denominator, 
Tier 1 capital and reserves, used in both ratios by removing the 
applicable portions of the CECL transitional amounts added to retained 
earnings for regulatory capital purposes and attributable to the 
allowance for credit losses on loans and leases held for investment.
---------------------------------------------------------------------------

    \33\ See 12 CFR 327.16(b)(ii)(A)(2)(iv).
---------------------------------------------------------------------------

2. Concentration Measure
    For large banks, the concentration measure is the higher of (1) the 
ratio of higher-risk assets to Tier 1 capital and reserves or (2) the 
growth-adjusted portfolio concentration measure. The growth-adjusted 
portfolio concentration measure includes the ratio of concentration 
levels for several loan portfolios to Tier 1 capital and reserves.
    For highly complex banks, the concentration measure is the highest 
of three measures: (1) The ratio of higher-risk assets to Tier 1 
capital and reserves, (2) the ratio of top 20 counterparty exposures to 
Tier 1 capital and reserves, or (3) the ratio of the largest 
counterparty exposure to Tier 1 capital and reserves.\34\
---------------------------------------------------------------------------

    \34\ See Appendix A to subpart A of 23 CFR 327.
---------------------------------------------------------------------------

    The double counting results in lower ratios and a concentration 
measure that reflects less risk than a bank actually poses to the DIF. 
Under the final rule, the FDIC is adjusting the denominator, Tier 1 
capital and reserves, used in each of these ratios by removing the 
applicable portions of the CECL transitional amounts added to retained 
earnings for regulatory capital purposes and attributable to the 
allowance for credit losses on loans and leases held for investment.
3. Loss Severity Measure
    The loss severity measure estimates the relative magnitude of 
potential losses to the DIF in the event of an IDI's failure.\35\ In 
calculating this measure, the FDIC applies a standardized set of 
assumptions based on historical failures regarding liability runoffs 
and the recovery value of asset categories to simulate possible losses 
to the FDIC, reducing capital and assets until the Tier 1 leverage 
ratio declines to 2 percent. The double counting results in a greater 
reduction of assets during the capital reduction phase and therefore a 
lower resolution value of assets at the time of failure, which in turn 
results in a higher loss severity measure that reflects more risk than 
a bank actually poses to the DIF. Under the final rule, the FDIC is 
adjusting the calculation of the capital adjustment in the loss 
severity measure to remove the double counting of the applicable 
portion of the CECL transitional amounts added to retained earnings for 
regulatory capital purposes and attributable to the allowance for 
credit losses on loans and leases held for investment for both large 
banks and highly complex banks.\36\
---------------------------------------------------------------------------

    \35\ Appendix D to subpart A of 12 CFR part 327 describes the 
calculation of the loss severity measure.
    \36\ The loss severity measure is an average loss severity ratio 
for the three most recent quarters of data available. It is 
anticipated that the temporary reporting changes proposed pursuant 
to this final rule would be implemented no earlier than the first 
applicable reporting period following the anticipated effective date 
of this final rule. As such, the FDIC will adjust the calculation of 
the loss severity measure to remove the double counting of the 
specified portion of the CECL transitional amounts for one of the 
three quarters averaged in the first reporting period following the 
effective date, for two of the three quarters averaged in the second 
reporting period following the effective date, and for all three 
quarters averaged in all subsequent reporting periods, as 
applicable.
---------------------------------------------------------------------------

C. Other Conforming Amendments to the Assessment Regulations

    Under the final rule, the FDIC is making conforming amendments to 
the FDIC's assessment regulations to effectuate the adjustments 
described above and consistent with the proposed rule. These conforming 
amendments ensure that the adjustments to the financial measures used 
to calculate a large or highly complex bank's assessment rate are 
properly incorporated into the assessment regulations.

D. Regulatory Reporting Changes

    A bank electing a transition under either the 2019 CECL rule or the 
2020 CECL rule must indicate its election to use the 3-year 2019 or the 
5-year 2020 CECL transition provision in Call Report

[[Page 11397]]

Schedule RC-R, Part I, item 2.a. In addition, such an electing bank 
must report the applicable portions of the transitional amounts under 
the 2019 CECL rule or the 2020 CECL rule in the affected Call Report 
items during the transition period. For example, an electing bank would 
add the applicable portion of the CECL transitional amount (or the 
modified CECL transitional amount) when calculating the amount of 
retained earnings it would report in Schedule RC-R, Part I, item 2, of 
the Call Report.\37\
---------------------------------------------------------------------------

    \37\ See 84 FR 4227 and 85 FR 17726.
---------------------------------------------------------------------------

    In calculating certain measures used in the scorecard approach for 
determining deposit insurance assessments for large or highly complex 
banks, under the final rule the FDIC will remove a specified portion of 
the CECL transitional amounts added to retained earnings under the 
transitions provided for under the 2020 and 2019 CECL rules. 
Specifically, in certain measures used in the scorecard approach for 
determining assessments for large or highly complex banks, the FDIC 
will remove the applicable portion of the CECL transitional amount (or 
modified CECL transitional amount) added to retained earnings for 
regulatory capital purposes (Call Report Schedule RC-R, Part I, Item 
2), attributable to the allowance for credits losses on loans and 
leases held for investment and included in the amount reported on the 
Call Report balance sheet in Schedule RC, item 4.c.
    However, large or highly complex banks that have elected a CECL 
transition provision do not currently report these specific portions of 
the CECL transitional amounts in the Call Report. Thus, implementing 
the finalized amendments to the risk-based deposit insurance assessment 
system applicable to large or highly complex banks requires temporary 
changes to the reporting requirements applicable to the Call Report and 
its related instructions. These reporting changes have been proposed 
and are being effectuated in coordination with the other member 
entities of the FFIEC.\38\ As previously described, changes to 
reporting requirements for large or highly complex banks pursuant to 
this final rule will be required only while the temporary relief is 
reflected in banks' regulatory reports.
---------------------------------------------------------------------------

    \38\ 85 FR 82580 (Dec. 18, 2020).
---------------------------------------------------------------------------

E. Expected Effects

    The final rule removes the applicable portions of the CECL 
transitional amounts added to retained earnings for regulatory capital 
purposes and attributable to the allowance for credit losses on loans 
and leases held for investment from certain financial measures used in 
the scorecards that determine deposit insurance assessment rates for 
large or highly complex banks. Absent the final rule, this amount would 
be temporarily double counted and could result in a deposit insurance 
assessment rate for a large or highly complex bank that does not 
accurately reflect the bank's risk to the DIF, all else equal. 
Furthermore, the double counting could result in inequitable deposit 
insurance assessments, as a large or highly complex bank that has not 
yet implemented CECL or that does not utilize a transition provision 
could pay a higher or lower assessment rate than a bank that has 
implemented CECL and utilizes a transition provision, even if both 
banks pose equal risk to the DIF. The FDIC estimates that the majority 
of large or highly complex banks affected by the double counting are 
currently paying a lower rate than they would absent the final rule. 
However, the FDIC also estimates that a few banks are currently paying 
a higher rate than they otherwise would pay if the issue of double 
counting is corrected. The FDIC estimates that the rate these latter 
banks are paying is higher by only a de minimis amount, and occurs 
where the double counting on the loss severity measure more than 
offsets the effect of double counting on the other scorecard measures 
that are calculated using the sum of Tier 1 capital and reserves.
    Based on FDIC data as of September 30, 2020, the FDIC estimates 
that this double counting could result in approximately $55 million in 
annual foregone assessment revenue, or 0.047 percent of the DIF balance 
as of that date. This estimate includes the majority of large or highly 
complex banks that are paying a lower rate due to the double counting 
and the few banks that are paying a higher rate absent correction of 
double counting. The FDIC expects that absent this final rule, the 
estimated amount of foregone assessment revenue would increase as 
additional large or highly complex banks adopt CECL, to the extent 
those large or highly complex banks elect to apply a transition. Absent 
the final rule, the FDIC expects that this amount of foregone 
assessment revenue also may increase as large or highly complex banks 
electing the 2020 CECL rule include in their modified CECL transitional 
amounts an estimate of CECL's effect on regulatory capital, relative to 
the incurred loss methodology's effect on regulatory capital, during 
the first two years of CECL adoption. As of September 30, 2020, the 
FDIC estimates that 109 of 139 large or highly complex banks had 
implemented CECL, and that 94 had elected a transition provided under 
either the 2019 CECL rule or the 2020 CECL rule. As banks phase out the 
transitional amounts over time, the assessment effect also will 
decline. As described previously, the optional temporary relief from 
CECL afforded by the CARES Act and as extended by the Consolidated 
Appropriations Act, 2021, and the transitions provided for under the 
2019 CECL rule and 2020 CECL rule, provide that all banks will have 
completely reflected in regulatory capital the day-one effects of CECL 
(plus, if applicable, an estimate of CECL's effect on regulatory 
capital, relative to the incurred loss methodology's effect on 
regulatory capital, during the first two years of CECL adoption) by 
December 31, 2026, thereby eliminating the double counting effects from 
the scorecard for large or highly complex banks. These above estimates 
are subject to uncertainty given differing CECL implementation dates 
and the option for large or highly complex banks to choose between the 
transitions offered under the 2019 CECL rule or the 2020 CECL rule, or 
to recognize the full impact of CECL on regulatory capital upon 
implementation.
    The final rule could pose some additional regulatory costs for 
large or highly complex banks that elect a transition under either the 
2019 CECL rule or the 2020 CECL rule associated with changes to 
internal systems or processes, or changes to reporting requirements. It 
is the FDIC's understanding that banks already calculate, for internal 
purposes, the portion of the CECL transitional amount (or modified CECL 
transitional amount) added to retained earnings for regulatory capital 
purposes that is attributable to the allowance for credit losses on 
loans and leases held for investment. As such, the FDIC anticipates 
that the addition of this temporary item to the Call Report would not 
impose significant additional burden and any additional costs are 
likely to be de minimis.

IV. Effective Date of the Final Rule

    The FDIC is issuing this final rule with an effective date of April 
1, 2021, and applicable to the second quarterly assessment period of 
2021 (i.e., April 1-June 30, 2021). Based on this effective date, the 
temporary effects of the double counting of the applicable portions of 
the CECL transitional amounts in select financial measures used in the 
scorecard approach for determining assessments for large or highly 
complex banks will

[[Page 11398]]

be corrected beginning with the second quarterly assessment period of 
2021.

V. Administrative Law Matters

A. Administrative Procedure Act

    Under the Administrative Procedure Act (APA),\39\ ``[t]he required 
publication or service of a substantive rule shall be made not less 
than 30 days before its effective date, except as otherwise provided by 
the agency for good cause found and published with the rule.'' \40\
---------------------------------------------------------------------------

    \39\ 5 U.S.C. 553.
    \40\ 5 U.S.C. 553(d).
---------------------------------------------------------------------------

    An effective date of April 1, 2021 would mean that the temporary 
effects of the double counting of the applicable portions of the CECL 
transitional amounts in select financial measures used in the scorecard 
approach for determining assessments for large or highly complex banks 
are corrected, beginning with the second quarterly assessment period of 
2021 (i.e., April 1-June 30, 2021), with a payment due date of 
September 30, 2021.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
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.\41\ However, a regulatory flexibility analysis is not 
required if the agency certifies that the 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 $600 million.\42\ Certain types of rules, such as 
rules of particular applicability 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.\43\ 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.
---------------------------------------------------------------------------

    \41\ 5 U.S.C. 601 et seq.
    \42\ The SBA defines a small banking organization as having $600 
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, effective August 19, 2019). 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.'' 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.
    \43\ 5 U.S.C. 601.
---------------------------------------------------------------------------

    Based on Call Report data as of September 30, 2020, the FDIC 
insures 5,042 depository institutions, of which 3,585 are defined as 
small entities by the terms of the RFA.\44\ The final rule, however, 
only applies to institutions with $10 billion or greater in total 
assets. Consequently, small entities for purposes of the RFA will 
experience no economic impact as a result of the implementation of this 
final rule.
---------------------------------------------------------------------------

    \44\ FDIC Call Report data, September 30, 2020.
---------------------------------------------------------------------------

C. Riegle Community Development and Regulatory Improvement Act of 1994

    Section 302(a) of the Riegle Community Development and Regulatory 
Improvement Act (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. 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.\45\
---------------------------------------------------------------------------

    \45\ 5 U.S.C. 553(b)(B).
    \45\ U.S.C. 553(d).
    \45\ U.S.C. 601 et seq.
    \45\ U.S.C. 801 et seq.
    \45\ U.S.C. 801(a)(3).
    \45\ U.S.C. 804(2).
    \45\ U.S.C. 808(2).
    \45\ 12 U.S.C. 4802(a).
    \45\ 12 U.S.C. 4802(b).
---------------------------------------------------------------------------

    The amendments to the FDIC's deposit insurance assessment 
regulations under this final rule do impose additional reporting, 
disclosures, or other new requirements. As discussed above, the FDIC is 
making temporary changes to the FFIEC 031 and FFIEC 041 Call Report 
forms and instructions to implement the amendments to the assessment 
system to remove the double counting under the final rule. These 
changes are being effectuated in coordination with the other member 
entities of the FFIEC. As such, the FDIC considered the requirements of 
the RCDRIA and are finalizing this rule with an effective date of April 
1, 2021. The FDIC invited comments regarding the application of RCDRIA 
to the final rule, but did not receive comments on this topic.

D. 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.\46\ The FDIC's OMB control 
numbers for its assessment regulations are 3064-0057, 3064-0151, and 
3064-0179. The final rule does not 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 have been addressed in a separate Federal 
Register notice or notices.\47\
---------------------------------------------------------------------------

    \46\ 4 U.S.C. 3501-3521.
    \47\ 85 FR 82580 (Dec. 18, 2020).
---------------------------------------------------------------------------

E. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \48\ 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, but did 
not receive any comments on this topic.
---------------------------------------------------------------------------

    \48\ 12 U.S.C. 4809.
---------------------------------------------------------------------------

E. The Congressional Review Act

    For purposes of Congressional Review Act, the OMB makes a 
determination as to whether a final rule constitutes a ``major'' rule. 
The OMB has determined that the final rule is not a major rule for 
purposes of the Congressional Review Act.
    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. The Congressional Review 
Act defines a

[[Page 11399]]

``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. 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 citation for part 327 continues to read as follows:

    Authority:  12 U.S.C. 1813, 1815, 1817-19, 1821.


0
2. In Appendix A to Subpart A, revise the table under the heading, 
``VI. Description of Scorecard Measures'' to read as follows:

Appendix A to Subpart A of Part 327--Method To Derive Pricing 
Multipliers and Uniform Amount

* * * * *

VI. Description of Scorecard Measures

------------------------------------------------------------------------
   Scorecard  measures \1\                    Description
------------------------------------------------------------------------
Leverage Ratio...............  Tier 1 capital for Prompt Corrective
                                Action (PCA) divided by adjusted average
                                assets based on the definition for
                                prompt corrective action.
Concentration Measure for      The concentration score for large
 Large Insured depository       institutions is the higher of the
 institutions (excluding        following two scores:
 Highly Complex Institutions).
    (1) Higher-Risk Assets/    Sum of construction and land development
     Tier 1 Capital and         (C&D) loans (funded and unfunded),
     Reserves \2\.              higher-risk C&I loans (funded and
                                unfunded), nontraditional mortgages,
                                higher-risk consumer loans, and higher-
                                risk securitizations divided by Tier 1
                                capital and reserves. See Appendix C for
                                the detailed description of the ratio.
    (2) Growth-Adjusted        The measure is calculated in the
     Portfolio Concentrations   following steps:
     \2\.
                                  (1) Concentration levels (as a ratio
                                   to Tier 1 capital and reserves) are
                                   calculated for each broad portfolio
                                   category:
                                    <bullet> C&D,
                                    <bullet> Other commercial real
                                     estate loans,
                                    <bullet> First lien residential
                                     mortgages (including non-agency
                                     residential mortgage-backed
                                     securities),
                                    <bullet> Closed-end junior liens and
                                     home equity lines of credit
                                     (HELOCs),
                                    <bullet> Commercial and industrial
                                     loans,
                                    <bullet> Credit card loans, and
                                    <bullet> Other consumer loans.
                                  (2) Risk weights are assigned to each
                                   loan category based on historical
                                   loss rates.
                                  (3) Concentration levels are
                                   multiplied by risk weights and
                                   squared to produce a risk-adjusted
                                   concentration ratio for each
                                   portfolio.
                                  (4) Three-year merger-adjusted
                                   portfolio growth rates are then
                                   scaled to a growth factor of 1 to 1.2
                                   where a 3-year cumulative growth rate
                                   of 20 percent or less equals a factor
                                   of 1 and a growth rate of 80 percent
                                   or greater equals a factor of 1.2. If
                                   three years of data are not
                                   available, a growth factor of 1 will
                                   be assigned.
                                  (5) The risk-adjusted concentration
                                   ratio for each portfolio is
                                   multiplied by the growth factor and
                                   resulting values are summed.
                                  See Appendix C for the detailed
                                   description of the measure.
Concentration Measure for      Concentration score for highly complex
 Highly Complex Institutions.   institutions is the highest of the
                                following three scores:
    (1) Higher-Risk Assets/    Sum of C&D loans (funded and unfunded),
     Tier 1 Capital and         higher-risk C&I loans (funded and
     Reserves \2\.              unfunded), nontraditional mortgages,
                                higher-risk consumer loans, and higher-
                                risk securitizations divided by Tier 1
                                capital and reserves. See Appendix C for
                                the detailed description of the measure.
    (2) Top 20 Counterparty    Sum of the 20 largest total exposure
     Exposure/Tier 1 Capital    amounts to counterparties divided by
     and Reserves \2\.          Tier 1 capital and reserves. The total
                                exposure amount is equal to the sum of
                                the institution's exposure amounts to
                                one counterparty (or borrower) for
                                derivatives, securities financing
                                transactions (SFTs), and cleared
                                transactions, and its gross lending
                                exposure (including all unfunded
                                commitments) to that counterparty (or
                                borrower). A counterparty includes an
                                entity's own affiliates. Exposures to
                                entities that are affiliates of each
                                other are treated as exposures to one
                                counterparty (or borrower). Counterparty
                                exposure excludes all counterparty
                                exposure to the U.S. Government and
                                departments or agencies of the U.S.
                                Government that is unconditionally
                                guaranteed by the full faith and credit
                                of the United States. The exposure
                                amount for derivatives, including OTC
                                derivatives, cleared transactions that
                                are derivative contracts, and netting
                                sets of derivative contracts, must be
                                calculated using the methodology set
                                forth in 12 CFR 324.34(b), but without
                                any reduction for collateral other than
                                cash collateral that is all or part of
                                variation margin and that satisfies the
                                requirements of 12 CFR
                                324.10(c)(4)(ii)(C)(1)(ii) and (iii) and
                                324.10(c)(4)(ii)(C)(3) through (7). The
                                exposure amount associated with SFTs,
                                including cleared transactions that are
                                SFTs, must be calculated using the
                                standardized approach set forth in 12
                                CFR 324.37(b) or (c). For both
                                derivatives and SFT exposures, the
                                exposure amount to central
                                counterparties must also include the
                                default fund contribution.\3\

[[Page 11400]]

 
    (3) Largest Counterparty   The largest total exposure amount to one
     Exposure/Tier 1 Capital    counterparty divided by Tier 1 capital
     and Reserves \2\.          and reserves. The total exposure amount
                                is equal to the sum of the institution's
                                exposure amounts to one counterparty (or
                                borrower) for derivatives, SFTs, and
                                cleared transactions, and its gross
                                lending exposure (including all unfunded
                                commitments) to that counterparty (or
                                borrower). A counterparty includes an
                                entity's own affiliates. Exposures to
                                entities that are affiliates of each
                                other are treated as exposures to one
                                counterparty (or borrower). Counterparty
                                exposure excludes all counterparty
                                exposure to the U.S. Government and
                                departments or agencies of the U.S.
                                Government that is unconditionally
                                guaranteed by the full faith and credit
                                of the United States. The exposure
                                amount for derivatives, including OTC
                                derivatives, cleared transactions that
                                are derivative contracts, and netting
                                sets of derivative contracts, must be
                                calculated using the methodology set
                                forth in 12 CFR 324.34(b), but without
                                any reduction for collateral other than
                                cash collateral that is all or part of
                                variation margin and that satisfies the
                                requirements of 12 CFR
                                324.10(c)(4)(ii)(C)(1)(ii) and (iii) and
                                324.10(c)(4)(ii)(C)(3) through (7). The
                                exposure amount associated with SFTs,
                                including cleared transactions that are
                                SFTs, must be calculated using the
                                standardized approach set forth in 12
                                CFR 324.37(b) or (c). For both
                                derivatives and SFT exposures, the
                                exposure amount to central
                                counterparties must also include the
                                default fund contribution.\3\
Core Earnings/Average Quarter- Core earnings are defined as net income
 End Total Assets.              less extraordinary items and tax-
                                adjusted realized gains and losses on
                                available-for-sale (AFS) and held-to-
                                maturity (HTM) securities, adjusted for
                                mergers. The ratio takes a four-quarter
                                sum of merger-adjusted core earnings and
                                divides it by an average of five quarter-
                                end total assets (most recent and four
                                prior quarters). If four quarters of
                                data on core earnings are not available,
                                data for quarters that are available
                                will be added and annualized. If five
                                quarters of data on total assets are not
                                available, data for quarters that are
                                available will be averaged.
Credit Quality Measure.......  The credit quality score is the higher of
                                the following two scores:
    (1) Criticized and         Sum of criticized and classified items
     Classified Items/Tier 1    divided by the sum of Tier 1 capital and
     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        Sum of loans that are 30 days or more
     Assets/Tier 1 Capital      past due and still accruing interest,
     and Reserves \2\.          nonaccrual loans, restructured loans
                                (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.
Core Deposits/Total            Total domestic deposits excluding
 Liabilities.                   brokered deposits and uninsured non-
                                brokered time deposits divided by total
                                liabilities.
Balance Sheet Liquidity Ratio  Sum of cash and balances due from
                                depository institutions, federal funds
                                sold and securities purchased under
                                agreements to resell, and the market
                                value of available for sale and held to
                                maturity agency securities (excludes
                                agency mortgage-backed securities but
                                includes all other agency securities
                                issued by the U.S. Treasury, U.S.
                                government agencies, and U.S. government-
                                sponsored enterprises) divided by the
                                sum of federal funds purchased and
                                repurchase agreements, other borrowings
                                (including FHLB) with a remaining
                                maturity of one year or less, 5 percent
                                of insured domestic deposits, and 10
                                percent of uninsured domestic and
                                foreign deposits.\5\
Potential Losses/Total         Potential losses to the DIF in the event
 Domestic Deposits (Loss        of failure divided by total domestic
 Severity Measure) \6\.         deposits. Appendix D describes the
                                calculation of the loss severity measure
                                in detail.
Market Risk Measure for        The market risk score is a weighted
 Highly Complex Institutions.   average of the following three scores:
    (1) Trading Revenue        Trailing 4-quarter standard deviation of
     Volatility/Tier 1          quarterly trading revenue (merger-
     Capital.                   adjusted) divided by Tier 1 capital.
    (2) Market Risk Capital/   Market risk capital divided by Tier 1
     Tier 1 Capital.            capital.\7\
    (3) Level 3 Trading        Level 3 trading assets divided by Tier 1
     Assets/Tier 1 Capital.     capital.
Average Short-term Funding/    Quarterly average of federal funds
 Average Total Assets.          purchased and repurchase agreements
                                divided by the quarterly average of
                                total assets as reported on Schedule RC-
                                K of the Call Reports.
------------------------------------------------------------------------
\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.
\3\ SFTs include repurchase agreements, reverse repurchase agreements,
  security lending and borrowing, and margin lending transactions, where
  the value of the transactions depends on market valuations and the
  transactions are often subject to margin agreements. The default fund
  contribution is the funds contributed or commitments made by a
  clearing member to a central counterparty's mutualized loss sharing
  arrangement. The other terms used in this description are as defined
  in 12 CFR part 324, subparts A and D, unless defined otherwise in 12
  CFR part 327.

[[Page 11401]]

 
\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\ Deposit runoff rates for the balance sheet liquidity ratio reflect
  changes issued by the Basel Committee on Banking Supervision in its
  December 2010 document, ``Basel III: International Framework for
  liquidity risk measurement, standards, and monitoring,'' http://www.bis.org/publ/bcbs188.pdf.
\6\ The applicable portions of the 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 will be removed from the calculation of the loss
  severity measure.
\7\ Market risk is defined in 12 CFR 324.202.

* * * * *

0
3. Amend Appendix C to Subpart A by:
0
a. Redesignating footnotes 2 through 16 as footnotes 3 through 17; and
0
b. Revising the paragraph under the heading, ``I. Concentration 
Measures,'' to read as follows:

Appendix C to Subpart A of Part 327--Description of Concentration 
Measures

I. Concentration Measures

    The concentration score for large banks is the higher of the 
higher-risk assets to Tier 1 capital and reserves score or the 
growth-adjusted portfolio concentrations score.\1\ The concentration 
score for highly complex institutions is the highest of the higher-
risk assets to Tier 1 capital and reserves score, the Top 20 
counterparty exposure to Tier 1 capital and reserves score, or the 
largest counterparty to Tier 1 capital and reserves score.\2\ The 
higher-risk assets to Tier 1 capital and reserves ratio and the 
growth-adjusted portfolio concentration measure are described 
herein.

    \1\ For the purposes of this Appendix, the term ``bank'' means 
insured depository institution.
    \2\ As described in Appendix A to this subpart, 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 throughout the large bank and highly 
complex bank scorecards, including in the ratio of Higher-Risk 
Assets to Tier 1 Capital and Reserves, the Growth-Adjusted Portfolio 
Concentrations Measure, the ratio of Top 20 Counterparty Exposure to 
Tier 1 Capital and Reserves, and the Ratio of Largest Counterparty 
Exposure to Tier 1 Capital and Reserves.

* * * * *

0
4. In Appendix D to Subpart A, revise the introductory text to read as 
follows:

Appendix D to Subpart A of Part 327--Description of the Loss Severity 
Measure

    The loss severity measure applies a standardized set of 
assumptions to an institution's balance sheet to measure possible 
losses to the FDIC in the event of an institution's failure. To 
determine an institution's loss severity rate, the FDIC first 
applies assumptions about uninsured deposit and other unsecured 
liability runoff, and growth in insured deposits, to adjust the size 
and composition of the institution's liabilities. Assets are then 
reduced to match any reduction in liabilities.\1\ The institution's 
asset values are then further reduced so that the Leverage ratio 
reaches 2 percent.<SUP>2 3</SUP> In both cases, assets are adjusted 
pro rata to preserve the institution's asset composition. 
Assumptions regarding loss rates at failure for a given asset 
category and the extent of secured liabilities are then applied to 
estimated assets and liabilities at failure to determine whether the 
institution has enough unencumbered assets to cover domestic 
deposits. Any projected shortfall is divided by current domestic 
deposits to obtain an end-of-period loss severity ratio. The loss 
severity measure is an average loss severity ratio for the three 
most recent quarters of data available.

    \1\ In most cases, the model would yield reductions in 
liabilities and assets prior to failure. Exceptions may occur for 
institutions primarily funded through insured deposits which the 
model assumes to grow prior to failure.
    \2\ Of course, in reality, runoff and capital declines occur 
more or less simultaneously as an institution approaches failure. 
The loss severity measure assumptions simplify this process for ease 
of modeling.
    \3\ 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 calculation of the loss severity 
measure.
* * * * *

0
5. In Appendix E to subpart A, under the heading ``II. Mitigating the 
Assessment Effects of Paycheck Protection Program Loans for Large or 
Highly Complex Institutions'', revise Table E.2 and paragraph (a) to 
read as follows:

   Table E.2--Exclusions From Certain Risk Measures Used To Calculate the Assessment Rate for Large or Highly
                                              Complex Institutions
----------------------------------------------------------------------------------------------------------------
         Scorecard  measures \1\                         Description                          Exclusions
----------------------------------------------------------------------------------------------------------------
Leverage Ratio..........................  Tier 1 capital for Prompt Corrective       No Exclusion.
                                           Action (PCA) divided by adjusted average
                                           assets based on the definition for
                                           prompt corrective action.
Concentration Measure for Large Insured   The concentration score for large
 depository institutions (excluding        institutions is the higher of the
 Highly Complex Institutions).             following two scores:
    (1) Higher-Risk Assets/Tier 1         Sum of construction and land development   No Exclusion.
     Capital and Reserves.                 (C&D) loans (funded and unfunded),
                                           higher-risk commercial and industrial
                                           (C&I) loans (funded and unfunded),
                                           nontraditional mortgages, higher-risk
                                           consumer loans, and higher-risk
                                           securitizations divided by Tier 1
                                           capital and reserves. See Appendix C for
                                           the detailed description of the ratio.
    (2) Growth-Adjusted Portfolio         The measure is calculated in the
     Concentrations.                       following steps:
                                          (1) Concentration levels (as a ratio to
                                           Tier 1 capital and reserves) are
                                           calculated for each broad portfolio
                                           category:

[[Page 11402]]

 
                                          <bullet> Constructions and land
                                           development (C&D),
                                          <bullet> Other commercial real estate
                                           loans,
                                          <bullet> First lien residential mortgages
                                           (including non-agency residential
                                           mortgage-backed securities),
                                          <bullet> Closed-end junior liens and home
                                           equity lines of credit (HELOCs),
                                          <bullet> Commercial and industrial loans
                                           (C&I),
                                          <bullet> Credit card loans, and
                                          <bullet> Other consumer loans.
                                          (2) Risk weights are assigned to each
                                           loan category based on historical loss
                                           rates.
                                          (3) Concentration levels are multiplied
                                           by risk weights and squared to produce a
                                           risk-adjusted concentration ratio for
                                           each portfolio.
                                          (4) Three-year merger-adjusted portfolio   Exclude from C&I loan
                                           growth rates are then scaled to a growth   growth rate the
                                           factor of 1 to 1.2 where a 3-year          outstanding amount of
                                           cumulative growth rate of 20 percent or    loans provided under the
                                           less equals a factor of 1 and a growth     Paycheck Protection
                                           rate of 80 percent or greater equals a     Program.
                                           factor of 1.2. If three years of data
                                           are not available, a growth factor of 1
                                           will be assigned.
                                          (5) The risk-adjusted concentration ratio
                                           for each portfolio is multiplied by the
                                           growth factor and resulting values are
                                           summed.
                                          See Appendix C for the detailed
                                           description of the measure.
Concentration Measure for Highly Complex  Concentration score for highly complex
 Institutions.                             institutions is the highest of the
                                           following three scores:
    (1) Higher-Risk Assets/Tier 1         Sum of C&D loans (funded and unfunded),    No Exclusion.
     Capital and Reserves.                 higher-risk C&I loans (funded and
                                           unfunded), nontraditional mortgages,
                                           higher-risk consumer loans, and higher-
                                           risk securitizations divided by Tier 1
                                           capital and reserves. See Appendix C for
                                           the detailed description of the measure.
    (2) Top 20 Counterparty Exposure/     Sum of the 20 largest total exposure       No Exclusion.
     Tier 1 Capital and Reserves.          amounts to counterparties divided by
                                           Tier 1 capital and reserves. The total
                                           exposure amount is equal to the sum of
                                           the institution's exposure amounts to
                                           one counterparty (or borrower) for
                                           derivatives, securities financing
                                           transactions (SFTs), and cleared
                                           transactions, and its gross lending
                                           exposure (including all unfunded
                                           commitments) to that counterparty (or
                                           borrower). A counterparty includes an
                                           entity's own affiliates. Exposures to
                                           entities that are affiliates of each
                                           other are treated as exposures to one
                                           counterparty (or borrower). Counterparty
                                           exposure excludes all counterparty
                                           exposure to the U.S. Government and
                                           departments or agencies of the U.S.
                                           Government that is unconditionally
                                           guaranteed by the full faith and credit
                                           of the United States. The exposure
                                           amount for derivatives, including OTC
                                           derivatives, cleared transactions that
                                           are derivative contracts, and netting
                                           sets of derivative contracts, must be
                                           calculated using the methodology set
                                           forth in 12 CFR 324.34(b), but without
                                           any reduction for collateral other than
                                           cash collateral that is all or part of
                                           variation margin and that satisfies the
                                           requirements of 12 CFR
                                           324.10(c)(4)(ii)(C)(1)(ii) and (iii) and
                                           324.10(c)(4)(ii)(C)(3) through (7). The
                                           exposure amount associated with SFTs,
                                           including cleared transactions that are
                                           SFTs, must be calculated using the
                                           standardized approach set forth in 12
                                           CFR 324.37(b) or (c). For both
                                           derivatives and SFT exposures, the
                                           exposure amount to central
                                           counterparties must also include the
                                           default fund contribution.
    (3) Largest Counterparty Exposure/    The largest total exposure amount to one   No Exclusion.
     Tier 1 Capital and Reserves.          counterparty divided by Tier 1 capital
                                           and reserves. The total exposure amount
                                           is equal to the sum of the institution's
                                           exposure amounts to one counterparty (or
                                           borrower) for derivatives, SFTs, and
                                           cleared transactions, and its gross
                                           lending exposure (including all unfunded
                                           commitments) to that counterparty (or
                                           borrower). A counterparty includes an
                                           entity's own affiliates. Exposures to
                                           entities that are affiliates of each
                                           other are treated as exposures to one
                                           counterparty (or borrower). Counterparty
                                           exposure excludes all counterparty
                                           exposure to the U.S. Government and
                                           departments or agencies of the U.S.
                                           Government that is unconditionally
                                           guaranteed by the full faith and credit
                                           of the United States. The exposure
                                           amount for derivatives, including OTC
                                           derivatives, cleared transactions that
                                           are derivative contracts, and netting
                                           sets of derivative contracts, must be
                                           calculated using the methodology set
                                           forth in 12 CFR 324.34(b), but without
                                           any reduction for collateral other than
                                           cash collateral that is all or part of
                                           variation margin and that satisfies the
                                           requirements of 12 CFR
                                           324.10(c)(4)(ii)(C)(1)(ii) and (iii) and
                                           324.10(c)(4)(ii)(C)(3) through (7). The
                                           exposure amount associated with SFTs,
                                           including cleared transactions that are
                                           SFTs, must be calculated using the
                                           standardized approach set forth in 12
                                           CFR 324.37(b) or (c). For both
                                           derivatives and SFT exposures, the
                                           exposure amount to central
                                           counterparties must also include the
                                           default fund contribution.

[[Page 11403]]

 
Core Earnings/Average Quarter-End Total   Core earnings are defined as net income    Prior to averaging, exclude
 Assets.                                   less extraordinary items and tax-          from total assets for the
                                           adjusted realized gains and losses on      applicable quarter-end
                                           available-for-sale (AFS) and held-to-      periods the outstanding
                                           maturity (HTM) securities, adjusted for    balance of loans provided
                                           mergers. The ratio takes a four-quarter    under the Paycheck
                                           sum of merger-adjusted core earnings and   Protection Program.
                                           divides it by an average of five quarter-
                                           end total assets (most recent and four
                                           prior quarters). If four quarters of
                                           data on core earnings are not available,
                                           data for quarters that are available
                                           will be added and annualized. If five
                                           quarters of data on total assets are not
                                           available, data for quarters that are
                                           available will be averaged.
Credit Quality Measure. \2\               The credit quality score is the higher of
                                           the following two scores:
    (1) Criticized and Classified Items/  Sum of criticized and classified items     No Exclusion.
     Tier 1 Capital and Reserves.          divided by the sum of Tier 1 capital and
                                           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. 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/Tier 1     Sum of loans that are 30 days or more      No Exclusion.
     Capital and Reserves.                 past due and still accruing interest,
                                           nonaccrual loans, restructured loans
                                           (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.
Core Deposits/Total Liabilities.........  Total domestic deposits excluding          Exclude from total
                                           brokered deposits and uninsured non-       liabilities outstanding
                                           brokered time deposits divided by total    borrowings from Federal
                                           liabilities.                               Reserve Banks under the
                                                                                      Paycheck Protection
                                                                                      Program Liquidity Facility
                                                                                      with a maturity of one
                                                                                      year or less and
                                                                                      outstanding borrowings
                                                                                      from the Federal Reserve
                                                                                      Banks under the Paycheck
                                                                                      Protection Program
                                                                                      Liquidity Facility with a
                                                                                      maturity of greater than
                                                                                      one year.
Balance Sheet Liquidity Ratio...........  Sum of cash and balances due from          Include in highly liquid
                                           depository institutions, federal funds     assets the outstanding
                                           sold and securities purchased under        balance of PPP loans that
                                           agreements to resell, and the market       exceed borrowings from the
                                           value of available for sale and held to    Federal Reserve Banks
                                           maturity agency securities (excludes       under the PPPLF, until
                                           agency mortgage-backed securities but      September 30, 2020, or if
                                           includes all other agency securities       extended by the Board of
                                           issued by the U.S. Treasury, U.S.          Governors of the Federal
                                           government agencies, and U.S. government   Reserve System and the
                                           sponsored enterprises) divided by the      Secretary of the Treasury,
                                           sum of federal funds purchased and         until such date of
                                           repurchase agreements, other borrowings    extension.
                                           (including FHLB) with a remaining         Exclude from other
                                           maturity of one year or less, 5 percent    borrowings with a
                                           of insured domestic deposits, and 10       remaining maturity of one
                                           percent of uninsured domestic and          year or less the balance
                                           foreign deposits.                          of outstanding borrowings
                                                                                      from the Federal Reserve
                                                                                      Banks under the Paycheck
                                                                                      Protection Program
                                                                                      Liquidity Facility with a
                                                                                      remaining maturity of one
                                                                                      year or less.
Potential Losses/Total Domestic Deposits  Potential losses to the DIF in the event   Exclusions are described in
 (Loss Severity Measure).                  of failure divided by total domestic       paragraph (a) of this
                                           deposits. Paragraph (a) of this section    section.
                                           describes the calculation of the loss
                                           severity measure in detail.
Market Risk Measure for Highly Complex    The market risk score is a weighted
 Institutions \2\.                         average of the following three scores:

[[Page 11404]]

 
    (1) Trading Revenue Volatility/Tier   Trailing 4-quarter standard deviation of   No Exclusion.
     1 Capital.                            quarterly trading revenue (merger-
                                           adjusted) divided by Tier 1 capital.
    (2) Market Risk Capital/Tier 1        Market risk capital divided by Tier 1      No Exclusion.
     Capital.                              capital.
    (3) Level 3 Trading Assets/Tier 1     Level 3 trading assets divided by Tier 1   No Exclusion.
     Capital.                              capital.
Average Short-term Funding/Average Total  Quarterly average of federal funds         Exclude from the quarterly
 Assets.                                   purchased and repurchase agreements        average of total assets
                                           divided by the quarterly average of        the outstanding balance of
                                           total assets as reported on Schedule RC-   loans provided under the
                                           K of the Call Reports.                     Paycheck Protection
                                                                                      Program.
----------------------------------------------------------------------------------------------------------------
\1\ 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 throughout the large
  bank and highly complex bank scorecards, including in the ratio of Higher-Risk Assets to Tier 1 Capital and
  Reserves, the Growth-Adjusted Portfolio Concentrations Measure, the ratio of Top 20 Counterparty Exposure to
  Tier 1 Capital and Reserves, the Ratio of Largest Counterparty Exposure to Tier 1 Capital and Reserves, the
  ratio of Criticized and Classified Items to Tier 1 Capital and Reserves, and the ratio of Underperforming
  Assets to Tier 1 Capital and Reserves. All of these ratios are described in appendix A of this subpart.
\2\ The credit quality score is the greater of the criticized and classified items to Tier 1 capital and
  reserves score or the underperforming assets to Tier 1 capital and reserves score. The market risk score is
  the weighted average of three scores--the trading revenue volatility to Tier 1 capital score, the market risk
  capital to Tier 1 capital score, and the level 3 trading assets to Tier 1 capital score. All of these ratios
  are described in appendix A of this subpart and the method of calculating the scores is described in appendix
  B of this subpart. Each score is multiplied by its respective weight, and the resulting weighted score is
  summed to compute the score for the market risk measure. An overall weight of 35 percent is allocated between
  the scores for the credit quality measure and market risk measure. The allocation depends on the ratio of
  average trading assets to the sum of average securities, loans and trading assets (trading asset ratio) as
  follows: (1) Weight for credit quality score = 35 percent * (1--trading asset ratio); and, (2) Weight for
  market risk score = 35 percent * trading asset ratio. In calculating the trading asset ratio, exclude from the
  balance of loans the outstanding balance of loans provided under the Paycheck Protection Program.

    (a) Description of the loss severity measure. The loss severity 
measure applies a standardized set of assumptions to an institution's 
balance sheet to measure possible losses to the FDIC in the event of an 
institution's failure. To determine an institution's loss severity 
rate, the FDIC first applies assumptions about uninsured deposit and 
other liability runoff, and growth in insured deposits, to adjust the 
size and composition of the institution's liabilities. Exclude total 
outstanding borrowings from Federal Reserve Banks under the Paycheck 
Protection Program Liquidity Facility from short-and long-term secured 
borrowings, as appropriate. Assets are then reduced to match any 
reduction in liabilities. Exclude from an institution's balance of 
commercial and industrial loans the outstanding balance of loans 
provided under the Paycheck Protection Program. In the event that the 
outstanding balance of loans provided under the Paycheck Protection 
Program exceeds the balance of commercial and industrial loans, exclude 
any remaining balance of loans provided under the Paycheck Protection 
Program first from the balance of all other loans, up to the total 
amount of all other loans, followed by the balance of agricultural 
loans, up to the total amount of agricultural loans. Increase cash 
balances by outstanding loans provided under the Paycheck Protection 
Program that exceed total outstanding borrowings from Federal Reserve 
Banks under the Paycheck Protection Program Liquidity Facility, if any. 
The institution's asset values are then further reduced so that the 
Leverage Ratio reaches 2 percent. In both cases, assets are adjusted 
pro rata to preserve the institution's asset composition. Assumptions 
regarding loss rates at failure for a given asset category and the 
extent of secured liabilities are then applied to estimated assets and 
liabilities at failure to determine whether the institution has enough 
unencumbered assets to cover domestic deposits. Any projected shortfall 
is divided by current domestic deposits to obtain an end-of-period loss 
severity ratio. The loss severity measure is an average loss severity 
ratio for the three most recent quarters of data available. 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 calculation 
of the loss severity measure.
* * * * *

Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, on February 16, 2021.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2021-03456 Filed 2-23-21; 11:15 am]
BILLING CODE 6714-01-P


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