Board of Governors ofthe Federal Reserve System

Federal Deposit Insurance Corporation

Office ofthe Comptroller ofthe Currency

Joint Statement on Adjustment to the Calculation for Credit Concentration Ratios

Used in the Supervisory Approach

March 30, 2020

For supervision purposes, the agencies are adjusting their calculation for credit concentration

ratios to maintain a consistent approach for all banking organizations. A concentration of credit

generally exists when the extensions of credit or other obligations possess similar risk

characteristics. Typically, loans to related groups of borrowers, loans collateralized by a single

security or securities with common characteristics, and loans to borrowers with common

characteristics within an industry have been included in homogenous risk groupings when

assessing credit concentrations. For supervisory processes, credit concentration ratios assist in

capturing the size and potential risks of material credit concentrations posed to an institution's

capital. The adjustment in the ratios is in response to changes in the regulatory capital

requirements for some banking organizations after the implementation of the Community Bank

Leverage Ratio (CBLR) Rule. [Footnote 1

- Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), Pub. L. No.

115-174, 132 Stat. 1296, 1306-07 (2018), directed the agencies to establish a community bank leverage ratio for

qualifying community banking organizations as a simple alternative methodology to measure capital adequacy. For

the agencies' final CBLR Rule, see 84 Fed. Reg. 61776 (November 19, 2019). End of Footnote 1.]

As of March 31, 2020, qualifying community banking

organizations [Footnote 2

- The CBLR Rule defines qualifying community banking organizations as depository institutions and depository

institution holding companies with less than $10 billion in total consolidated assets and meet other qualifying 

criteria, including a leverage ratio (equal to tier 1 capital divided by average total consolidated assets) of greater than

9 percent. End of Footnote 2.]

that elect the CBLR framework are no longer required to report tier 2 capital. Tier

2 capital is a component of total capital, which has generally been the denominator in credit

concentration ratios used for supervisory processes.

As of March 31, 2020, for banking organizations that have adopted the Financial Accounting

Standards Board's Accounting Standards Codification Topic 326, Financial Instruments—Credit

Losses that implements the current expected credit losses (CECL) methodology, the agencies'

examiners will calculate credit concentration ratios using tier 1 capital plus the allowance for 

credit losses attributed to loans and leases as the denominator. For banking organizations that

have not adopted CECL, the agencies' examiners will calculate credit concentration ratios using

tier 1 capital plus the entire allowance for loan and lease losses as the denominator.

This adjustment is expected to approximate the agencies' historical methodology for calculating

credit concentration ratios. This adjustment also provides a consistent supervisory approach for 

all banking organizations. This adjustment applies only to supervisory calculations for credit

concentration ratios and does not affect the calculation of total capital for other purposes.