Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations 11391 

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. 

2As 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). 

3Banking organizations subject to the capital rule 

include national banks, state member banks, state 

nonmember banks, savings associations, and toptier 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). 

4See 84 FR 4225 (Feb. 14, 2019). 

TABLE 1 TO PARAGRAPH (h) 

Softwood lumber 

(by HTSUS number) 

Assessment 

$/cubic 

meter 

Assessment 

$/square 

meter 

4407.11.00 .................. 0.1737 0.004412 

4407.12.00 .................. 0.1737 0.004412 

4407.19.05 .................. 0.1737 0.004412 

4407.19.06 .................. 0.1737 0.004412 

4407.19.10 .................. 0.1737 0.004412 

4409.10.05 .................. 0.1737 0.004412 

4409.10.10 .................. 0.1737 0.004412 

4409.10.20 .................. 0.1737 0.004412 

4409.10.90 .................. 0.1737 0.004412 

4418.99.10 .................. 0.1737 0.004412 

* * * * * 

Bruce Summers, 

Administrator, Agricultural Marketing 

Service. 

[FR Doc. 2021–03467 Filed 2–24–21; 8:45 am] 

BILLING CODE P 

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. 

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 sciardi@fdic.gov; 

Ashley Mihalik, Chief, Banking and 

Regulatory Policy, (202) 898–3793 or 

amihalik@fdic.gov; Nefretete Smith, 

Counsel, (202) 898–6851 or nefsmith@

fdic.gov; Sydney Mayer, Senior 

Attorney, (202) 898–3669 or smayer@

fdic.gov. 

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

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

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 

11392 Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations 

5 12 CFR part 327. 

6See 71 FR 69282 (Nov. 30, 2006). 

7See 76 FR 10672 (Feb. 25, 2011). 

8See 12 CFR 327.3(b)(1). 

9See 12 CFR 327.5. 

10See 12 CFR 327.16(a) and (b). 

11See 12 CFR 327.16(b); see also 76 FR 10672 

(Feb. 25, 2011) and 77 FR 66000 (Oct. 31, 2012). 

12See 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. 

13ASU 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. 

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. 

15 12 CFR part 3 (OCC); 12 CFR part 217 (Board); 

12 CFR part 324 (FDIC). 

16 84 FR 4222 (Feb. 14, 2019). 

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

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

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 forwardlooking 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 longterm performance.12

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. 

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 heldto-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. 

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 threeyear period the day-one adverse effects 

of CECL on their regulatory capital 

ratios. 

Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations 11393 

17 85 FR 17723 (Mar. 31, 2020). 

18See 85 FR 61577 (Sept. 30, 2020). 

19A 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. 

20See 85 FR 61578 (Sept. 30, 2020). 

21The 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. 

22See 85 FR 61580 (Sept. 30, 2020). 

23Thus, 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. 

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 threeyear transition provision in the 2019 

CECL rule, which remains available to 

any banking organization at the time 

that it adopts CECL.20

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

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 

11394 Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations 

24See 84 FR 4228 (Feb. 14, 2019) and 85 FR 

61580 (Sept. 30, 2020). 25The 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. 26 85 FR 78794 (Dec. 7, 2020). 

incurred loss methodology’s effect on 

regulatory capital, during the first two 

years of CECL adoption).24

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

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 offbalance 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 dayone 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. 

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 

Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations 11395 

27This 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). 

28While 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. 

29Under 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). 

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. 

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 fiveyear 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

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

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 (absent final rule) ...................................................... $11,000 .................................................. $11,200. 

Applicable Portion of the CECL Transitional Amount ............................................. ................................................................ $200. 

Tier 1 Capital and Reserves (under final rule) ....................................................... ................................................................ $11,000. 

1This 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 

11396 Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations 

31See 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). 

32As 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. 

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

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

35Appendix D to subpart A of 12 CFR part 327 

describes the calculation of the loss severity 

measure. 

36The 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. 

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. 

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. 

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. 

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 higherrisk 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

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

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 

Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations 11397 

37See 84 FR 4227 and 85 FR 17726. 

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

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

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. 

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 

11398 Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations 

39 5 U.S.C. 553. 

40 5 U.S.C. 553(d). 

41 5 U.S.C. 601 et seq. 

42The 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. 

44FDIC Call Report data, September 30, 2020. 

45 5 U.S.C. 553(b)(B). 

45U.S.C. 553(d). 

45U.S.C. 601 et seq. 

45U.S.C. 801 et seq. 

45U.S.C. 801(a)(3). 

45U.S.C. 804(2). 

45U.S.C. 808(2). 

45 12 U.S.C. 4802(a). 

45 12 U.S.C. 4802(b). 

46 4 U.S.C. 3501–3521. 

47 85 FR 82580 (Dec. 18, 2020). 

48 12 U.S.C. 4809. 

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

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. 

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. 

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

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

E. Plain Language 

Section 722 of the Gramm-LeachBliley 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. 

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 

Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations 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 foreignbased 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 

■ 1. The authority citation for part 327 

continues to read as follows: 

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

1821. 

■ 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 

Large Insured depository 

institutions (excluding 

Highly Complex Institutions).

The concentration score for large institutions is the higher of the following two scores: 

(1) Higher-Risk Assets/ 

Tier 1 Capital and Reserves 2.

Sum of construction and land development (C&D) loans (funded and unfunded), 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 

Portfolio Concentrations 2.

The measure is calculated in the following steps: 

(1) Concentration levels (as a ratio to Tier 1 capital and reserves) are calculated for each broad portfolio category: 

• C&D, 

• Other commercial real estate loans, 

• First lien residential mortgages (including non-agency residential mortgage-backed securities), 

• Closed-end junior liens and home equity lines of credit (HELOCs), 

• Commercial and industrial loans, 

• Credit card loans, and 

• 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 

Highly Complex Institutions.

Concentration score for highly complex institutions is the highest of the following three scores: 

(1) Higher-Risk Assets/ 

Tier 1 Capital and Reserves 2.

Sum of C&D loans (funded and unfunded), 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/Tier 1 Capital and Reserves 2.

Sum of the 20 largest total exposure 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

11400 Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations 

Scorecard 

measures 1 Description 

(3) Largest Counterparty 

Exposure/Tier 1 Capital and Reserves 2.

The largest total exposure amount to one 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.3

Core Earnings/Average 

Quarter-End Total Assets.

Core earnings are defined as net income 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 fourquarter 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 Classified Items/Tier 1 Capital and Reserves 2.Sum of criticized and classified items 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.4 Criticized and classified items exclude loans and securities in trading books, and the amount recoverable from the U.S. government, its agencies, or government-sponsored enterprises, under guarantee or insurance provisions. 

(2) Underperforming Assets/Tier 1 Capital 

and Reserves 2.

Sum of loans that are 30 days or more past due and still accruing interest, nonaccrual loans, restructured loans 

(including restructured 1–4 family loans), and 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 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 Domestic Deposits (Loss Severity Measure) 6.Potential losses to the DIF in the event of failure divided by total domestic deposits. Appendix D describes the 

calculation of the loss severity measure in detail. 

Market Risk Measure for 

Highly Complex Institutions.

The market risk score is a weighted average of the following three scores: 

(1) Trading Revenue 

Volatility/Tier 1 Capital.

Trailing 4-quarter standard deviation of quarterly trading revenue (merger-adjusted) divided by Tier 1 capital. 

(2) Market Risk Capital/ 

Tier 1 Capital.

Market risk capital divided by Tier 1 capital.7

(3) Level 3 Trading Assets/Tier 1 Capital.Level 3 trading assets divided by Tier 1 capital. 

Average Short-term Funding/ 

Average Total Assets.

Quarterly average of federal funds purchased and repurchase agreements divided by the quarterly average of 

total assets as reported on Schedule RC–K of the Call Reports. 

1The 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. 2The 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. 3SFTs 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. 

Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations 11401 

4A 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. 6The 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. 

* * * * * 

■ 3. Amend Appendix C to Subpart A 

by: 

■ a. Redesignating footnotes 2 through 

16 as footnotes 3 through 17; and 

■ 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 growthadjusted 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. 

1For the purposes of this Appendix, the 

term ‘‘bank’’ means insured depository 

institution. 2As 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. 

* * * * * 

■ 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.2 3 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. 2Of 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. 3The 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. 

* * * * * 

■ 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 Action (PCA) divided by adjusted average assets based on the definition for prompt corrective action.No Exclusion. 

Concentration Measure for 

Large Insured depository 

institutions (excluding Highly Complex Institutions).

The concentration score for large institutions is the higher of the following two 

scores: 

(1) Higher-Risk Assets/ 

Tier 1 Capital and Reserves.

Sum of construction and land development (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.

No Exclusion. 

(2) Growth-Adjusted Portfolio Concentrations.The measure is calculated in the following steps: 

(1) Concentration levels (as a ratio to Tier 1 capital and reserves) are calculated for each broad portfolio category: 

11402 Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations 

TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR

HIGHLY COMPLEX INSTITUTIONS—Continued 

Scorecard 

measures 1 Description Exclusions 

• Constructions and land development (C&D), 

• Other commercial real estate loans, 

• First lien residential mortgages (including non-agency residential mortgage-backed securities), 

• Closed-end junior liens and home equity lines of credit (HELOCs), 

• Commercial and industrial loans (C&I), 

• Credit card loans, and 

• 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.

Exclude from C&I loan 

growth rate the outstanding amount of loans 

provided under the Paycheck Protection Program. 

(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 Institutions.

Concentration score for highly complex institutions is the highest of the following 

three scores: 

(1) Higher-Risk Assets/ 

Tier 1 Capital and Reserves.

Sum of C&D loans (funded and unfunded), 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.

No Exclusion. 

(2) Top 20 Counterparty 

Exposure/Tier 1 Capital and Reserves.

Sum of the 20 largest total exposure 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.

No Exclusion. 

(3) Largest Counterparty 

Exposure/Tier 1 Capital and Reserves.

The largest total exposure amount to one 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.

No Exclusion. 

Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations 11403 

TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR

HIGHLY COMPLEX INSTITUTIONS—Continued 

Scorecard 

measures 1 Description Exclusions 

Core Earnings/Average Quarter-End Total Assets.Core earnings are defined as net income 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.

Prior to averaging, exclude 

from total assets for the 

applicable quarter-end 

periods the outstanding 

balance of loans provided 

under the Paycheck Protection Program. 

Credit Quality Measure. 2 The credit quality score is the higher of the following two scores: 

(1) Criticized and Classified Items/Tier 1 Capital and Reserves.Sum of criticized and classified items 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.

No Exclusion. 

(2) Underperforming Assets/Tier 1 Capital and 

Reserves.

Sum of loans that are 30 days or more past due and still accruing interest, nonaccrual loans, restructured loans (including restructured 1–4 family loans), and 

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.

No Exclusion. 

Core Deposits/Total Liabilities Total domestic deposits excluding brokered deposits and uninsured non-brokered 

time deposits divided by total liabilities.

Exclude from total liabilities 

outstanding borrowings 

from Federal 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 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 mortgagebacked 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.

Include in highly liquid assets the outstanding balance of PPP loans that 

exceed borrowings from 

the Federal Reserve 

Banks under the PPPLF, 

until September 30, 

2020, or if extended by 

the Board of Governors 

of the Federal Reserve 

System and the Secretary of the Treasury, 

until such date of extension. 

Exclude from other borrowings with a remaining 

maturity of one year or 

less the balance 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 (Loss Severity Measure).Potential losses to the DIF in the event of failure divided by total domestic deposits. Paragraph (a) of this section describes the calculation of the loss severity 

measure in detail.

Exclusions are described in 

paragraph (a) of this section. 

Market Risk Measure for 

Highly Complex Institutions 2.

The market risk score is a weighted average of the following three scores: 

11404 Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations 

TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR

HIGHLY COMPLEX INSTITUTIONS—Continued 

Scorecard 

measures 1 Description Exclusions 

(1) Trading Revenue Volatility/Tier 1 Capital.Trailing 4-quarter standard deviation of quarterly trading revenue (merger-adjusted) divided by Tier 1 capital.No Exclusion. 

(2) Market Risk Capital/ 

Tier 1 Capital.

Market risk capital divided by Tier 1 capital .............................................................. No Exclusion. 

(3) Level 3 Trading Assets/Tier 1 Capital.Level 3 trading assets divided by Tier 1 capital ........................................................ No Exclusion. 

Average Short-term Funding/ 

Average Total Assets.

Quarterly average of federal funds purchased and repurchase agreements divided 

by the quarterly average of total assets as reported on Schedule RC–K of the 

Call Reports.

Exclude from the quarterly 

average of total assets 

the outstanding balance 

of loans provided under 

the Paycheck Protection 

Program. 

1The 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. 2The 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 longterm 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 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2020–0503; Product 

Identifier 2018–SW–006–AD; Amendment 

39–21386; AD 2021–02–03] 

RIN 2120–AA64 

Airworthiness Directives; Leonardo 

S.p.a. Helicopters 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final rule. 

SUMMARY: The FAA is adopting a new 

airworthiness directive (AD) for certain 

Leonardo S.p.a. (Leonardo) Model 

AW189 helicopters. This AD requires 

various repetitive inspections of the