[Federal Register Volume 87, Number 143 (Wednesday, July 27, 2022)]
[Proposed Rules]
[Pages 45023-45029]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-15763]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 87, No. 143 / Wednesday, July 27, 2022 / 
Proposed Rules  

[[Page 45023]]



FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AF85


Assessments, Amendments To Incorporate Troubled Debt 
Restructuring Accounting Standards Update

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Deposit Insurance Corporation seeks comment on a 
proposed rule that would incorporate updated accounting standards in 
the risk-based deposit insurance assessment system applicable to all 
large insured depository institutions (IDIs), including highly complex 
IDIs. The FDIC calculates deposit insurance assessment rates for large 
and highly complex IDIs based on supervisory ratings and financial 
measures, including the underperforming assets ratio and the higher-
risk assets ratio, both of which are determined, in part, using 
restructured loans or troubled debt restructurings (TDRs). The FDIC is 
proposing to include modifications to borrowers experiencing financial 
difficulty, an accounting term recently introduced by the Financial 
Accounting Standards Board (FASB) to replace TDRs, in the 
underperforming assets ratio and higher-risk assets ratio for purposes 
of deposit insurance assessments.

DATES: Comments must be received no later than August 26, 2022.

ADDRESSES: You may submit comments on the notice of proposed rulemaking 
using any of the following methods:
     Agency Website: https://www.fdic.gov/resources/regulations/federal-register-publications/. Follow the instructions for 
submitting comments on the agency website.
     Email: [email protected]. Include RIN 3064-AF85 on the 
subject line of the message.
     Mail: James P. Sheesley, Assistant Executive Secretary, 
Attention: Comments--RIN 3064-AF85, Federal Deposit Insurance 
Corporation, 550 17th Street NW, Washington, DC 20429.
     Hand Delivery: Comments may be hand delivered to the guard 
station at the rear of the 550 17th Street NW building (located on F 
Street NW) on business days between 7 a.m. and 5 p.m.
     Public Inspection: Comments received, including any 
personal information provided, may be posted without change to https://www.fdic.gov/resources/regulations/federal-register-publications/. 
Commenters should submit only information that the commenter wishes to 
make available publicly. The FDIC may review, redact, or refrain from 
posting all or any portion of any comment that it may deem to be 
inappropriate for publication, such as irrelevant or obscene material. 
The FDIC may post only a single representative example of identical or 
substantially identical comments, and in such cases will generally 
identify the number of identical or substantially identical comments 
represented by the posted example. All comments that have been 
redacted, as well as those that have not been posted, that contain 
comments on the merits of this document will be retained in the public 
comment file and will be considered as required under all applicable 
laws. All comments may be accessible under the Freedom of Information 
Act.

FOR FURTHER INFORMATION CONTACT: Scott Ciardi, Chief, Large Bank 
Pricing, 202-898-7079, [email protected]; Ashley Mihalik, Chief, Banking 
and Regulatory Policy, 202-898-3793, [email protected]; Kathryn Marks, 
Counsel, 202-898-3896, [email protected].

SUPPLEMENTARY INFORMATION: 

I. Policy Objective

    The FDIC's objective in setting forth this proposal is to ensure 
that the risk-based deposit insurance assessment system applicable to 
large and highly complex banks conforms to recently updated accounting 
standards.\1\ In March 2022, FASB issued Accounting Standards Update 
No. 2022-02 (ASU 2022-02), ``Financial Instruments--Credit Losses 
(Topic 326): Troubled Debt Restructurings and Vintage Disclosures,'' 
that eliminates the recognition and measurement guidance of TDRs and, 
instead, introduces new requirements related to financial statement 
disclosure of certain modifications of receivables made to borrowers 
experiencing financial difficulty, or ``modifications to borrowers 
experiencing financial difficulty.'' \2\ Risk-based deposit insurance 
assessments for large and highly complex banks are determined, in part, 
using TDRs. Therefore, to incorporate the updated accounting standards, 
the proposed amendment would include modifications to borrowers 
experiencing financial difficulty in the description of the 
underperforming assets ratio, which includes restructured loans, and 
definitions used in the higher-risk assets ratio, which reference TDRs. 
Both of these ratios are used to determine risk-based deposit insurance 
assessments for large and highly complex banks.
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    \1\ For deposit insurance assessment purposes, large IDIs are 
generally those that have $10 billion or more in total assets. A 
highly complex IDI is generally defined as an institution that has 
$50 billion or more in total assets and is controlled by a parent 
holding company that has $500 billion or more in total assets, or is 
a processing bank or trust company. See 12 CFR 327.8(f) and (g). As 
used in this proposed rule, the term ``large bank'' is synonymous 
with ``large institution,'' and the term ``highly complex bank'' is 
synonymous with ``highly complex institution,'' as those terms are 
defined in 12 CFR 327.8.
    \2\ FASB Accounting Standards Update No. 2022-02, ``Financial 
Instruments--Credit Losses (Topic 326): Troubled Debt Restructurings 
and Vintage Disclosures,'' March 2022 available at https://www.fasb.org/page/getarticle?uid=fasb_Media_Advisory_03-31-22.
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II. Background

A. Deposit Insurance Assessments

    The Federal Deposit Insurance Act (FDI Act) requires that the FDIC 
establish a risk-based deposit insurance assessment system.\3\ The FDIC 
charges all IDIs an assessment for deposit insurance equal to the IDI's 
deposit insurance assessment base multiplied by its risk-based 
assessment rate.\4\ An IDI's assessment base and assessment rate are 
determined each quarter using supervisory ratings and information 
collected from the Consolidated Reports of Condition and Income (Call 
Report) or the Report of Assets and Liabilities of U.S. Branches and 
Agencies of Foreign

[[Page 45024]]

Banks (FFIEC 002), as appropriate. Generally, an IDI's assessment base 
equals its average consolidated total assets minus its average tangible 
equity.\5\
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    \3\ 12 U.S.C. 1817(b).
    \4\ See 12 CFR 327.3(b)(1).
    \5\ See 12 CFR 327.5.
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    An IDI's assessment rate is calculated using different methods 
dependent upon whether the IDI is classified for deposit insurance 
assessment purposes as a small, large, or highly complex bank.\6\ Large 
and highly complex banks are assessed using a scorecard approach that 
combines CAMELS ratings and certain forward-looking financial measures 
to assess the risk that a large or highly complex bank poses to the 
Deposit Insurance Fund (DIF).\7\ The score that each large or highly 
complex bank receives is used to determine its deposit insurance 
assessment rate. One scorecard applies to most large banks and another 
applies to highly complex banks. Both scorecards use quantitative 
financial measures that are useful for predicting a large or highly 
complex bank's long-term performance. Two of the measures in the large 
and highly complex bank scorecards, the credit quality measure and the 
concentration measure, are determined using restructured loans or TDRs. 
These measures are described in more detail below.
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    \6\ See 12 CFR 327.8(e), (f), and (g).
    \7\ See 12 CFR 327.16(b); see also 76 FR 10672 (Feb. 25, 2011) 
and 77 FR 66000 (Oct. 31, 2012).
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B. Credit Quality Measure

    Both the large bank and the highly complex bank scorecards include 
a credit quality measure. The credit quality measure is the greater of 
(1) the criticized and classified items to the sum of Tier 1 capital 
and reserves score or (2) the underperforming assets to the sum of Tier 
1 capital and reserves score.\8\ Each risk measure, including the 
criticized and classified items ratio and the underperforming assets 
ratio, is converted to a score between 0 and 100 based upon minimum and 
maximum cutoff values.\9\
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    \8\ See 12 CFR 327.16(b)(1)(ii)(A)(2)(iv).
    \9\ See 12 CFR part 327, appendix B.
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    The underperforming assets ratio is described identically in the 
large and highly complex bank scorecards as the sum of loans that are 
30 days or more past due and still accruing interest, nonaccrual loans, 
restructured loans (including restructured 1-4 family loans), and other 
real estate owned (ORE), excluding the maximum amount recoverable from 
the U.S. Government, its agencies, or Government-sponsored agencies, 
under guarantee or insurance provisions, divided by a sum of Tier 1 
capital and reserves.\10\
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    \10\ See 12 CFR part 327, appendix A.
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    The specific data used to identify the ``restructured loans'' 
referenced in the above description are those items that banks disclose 
in their Call Report on Schedule RC-C, Part I, Memorandum items 1.a. 
through 1.g, ``Loans restructured in troubled debt restructurings that 
are in compliance with their modified terms.'' The portion of 
restructured loans that is guaranteed or insured by the U.S. Government 
are excluded from underperforming assets. This data is collected in 
Call Report Schedule RC-O, Memorandum item 16, ``Portion of loans 
restructured in troubled debt restructurings that are in compliance 
with their modified terms and are guaranteed or insured by the U.S. 
government.''

C. Concentration Measure

    Both the large and highly complex bank scorecards also include a 
concentration measure. The concentration measure is the greater of (1) 
the higher-risk assets to the sum of Tier 1 capital and reserves score 
or (2) the growth-adjusted portfolio concentrations score.\11\ Each 
risk measure, including the criticized and classified items ratio and 
the underperforming assets ratio, is converted to a score between 0 and 
100 based upon minimum and maximum cutoff values.\12\ The higher-risk 
assets ratio captures the risk associated with concentrated lending in 
higher-risk areas. Higher-risk assets include construction and 
development (C&D) loans, higher-risk commercial and industrial (C&I) 
loans, higher-risk consumer loans, nontraditional mortgage loans, and 
higher-risk securitizations.\13\
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    \11\ See 12 CFR 327.16(b)(1)(ii)(A)(2)(iii).
    \12\ See 12 CFR part 327, appendix C.
    \13\ Id.
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    Higher-risk C&I loans are defined, in part, based on whether the 
loan is owed to the bank by a higher-risk C&I borrower, which includes, 
among other things, a borrower that obtains a refinance of an existing 
C&I loan, subject to certain conditions. Higher-risk consumer loans are 
defined as all consumer loans where, as of origination, or, if the loan 
has been refinanced, as of refinance, the probability of default within 
two years is greater than 20 percent, excluding those consumer loans 
that meet the definition of a nontraditional mortgage loan. A refinance 
for purposes of higher-risk C&I loans and higher-risk consumer loans is 
defined in the assessment regulations and explicitly does not include 
modifications to a loan that would otherwise meet the definition of a 
refinance, but that result in the classification of a loan as a TDR.

D. FASB's Elimination of Troubled Debt Restructurings

    On March 31, 2022, FASB issued ASU 2022-02.\14\ This update 
eliminated the recognition and measurement guidance for TDRs for all 
entities that have adopted ASU 2016-13, ``Financial Instruments--Credit 
Losses (Topic 326): Measurement of Credit Losses on Financial 
Instruments'' and the Current Expected Credit Losses (CECL) 
methodology.\15\ The rationale was that ASU 2016-13 requires the 
measurement and recording of lifetime expected credit losses on an 
asset that is within the scope of ASU 2016-13, and as a result, credit 
losses from TDRs have been captured in the allowance for credit losses. 
Therefore, stakeholders observed and asserted that the additional 
designation of a loan modification as a TDR and the related accounting 
were unnecessarily complex and provided less meaningful information 
than under the incurred loss methodology.\16\
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    \14\ FASB Accounting Standards Update No. 2022-02, ``Financial 
Instruments--Credit Losses (Topic 326): Troubled Debt Restructurings 
and Vintage Disclosures'' available at https://www.fasb.org/Page/ShowPdf?path=ASU+2022-02.pdf.
    \15\ FASB Accounting Standards Update No. 2016-13, ``Financial 
Instruments--Credit Losses (Topic 326): Measurement of Credit Losses 
on Financial Instruments,'' available at https://www.fasb.org/Page/ShowPdf?path=ASU+2016-13.pdf.
    \16\ FASB Accounting Standards Update No. 2022-02, at BC19, pp. 
57-58.
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    The update eliminates the recognition of TDRs and, instead, 
introduces new financial statement disclosure requirements related to 
certain modifications of receivables made to borrowers experiencing 
financial difficulty, or ``modifications to borrowers experiencing 
financial difficulty.'' Such modifications are limited to those that 
result in principal forgiveness, interest rate reductions, other-than-
insignificant payment delays, or term extensions in the current 
reporting period. Modifications to borrowers experiencing financial 
difficulty may be different from those previously captured in TDR 
disclosures because an entity no longer would have to determine whether 
the creditor has granted a concession, which is a current requirement 
to determine whether a modification represents a TDR. The update 
requires entities to disclose information about (a) the types of 
modifications provided, disaggregated by modification type, (b) the 
expected

[[Page 45025]]

financial effect of those modifications, and (c) the performance of the 
loans after modification.
    For entities that have adopted CECL, ASU 2022-02 is effective for 
fiscal years beginning after December 15, 2022.\17\ FASB also permitted 
the early adoption of ASU 2022-02 by any entity that has adopted CECL. 
For regulatory reporting purposes, if an institution chooses to early 
adopt ASU 2022-02 during 2022, Supplemental Instructions to the Call 
Report specify that the institution should implement ASU 2022-02 for 
the same quarter-end report date and report ``modifications to 
borrowers experiencing financial difficulty'' in the current TDR Call 
Report line items.\18\ These line items include Schedule RC-C, Part I, 
Memorandum items 1.a. through 1.g., which are used to identify 
``restructured loans'' for the underperforming asset ratio used in the 
large and highly complex bank scorecards, described above. As a result, 
a large or highly complex institution that has early adopted ASU 2022-
02 and is reporting modifications to borrowers experiencing financial 
difficulty in the current TDR Call Report line items will be assigned a 
deposit insurance assessment rate that relies, in part, on this 
reporting. The FDIC and other members of the Federal Financial 
Institutions Examination Council (FFIEC) are planning to revise the 
Call Report forms and instructions to replace the current TDR 
terminology with updated language from ASU 2022-02 for the first 
quarter of 2023.
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    \17\ Generally speaking, entities that are U.S. Securities and 
Exchange Commission (SEC) filers, excluding smaller reporting 
companies as defined by the SEC, were required to adopt CECL 
beginning in January 2020. Most other entities are required to adopt 
CECL beginning in January 2023.
    \18\ See Financial Institution Letter (FIL) 17-2022, 
Consolidated Reports of Condition and Income for First Quarter 2022. 
See also Supplemental Instructions, March 2022 Call Report 
Materials, First 2022 Call, Number 299, available at https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_FFIEC041_FFIEC051_suppinst_202203.pdf.
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III. Proposed Rule

A. Summary

    The FDIC proposes to incorporate into the large and highly complex 
bank assessment scorecards the updated accounting standard that 
eliminates the recognition of TDRs and, instead, requires new financial 
statement disclosures on ``modifications to borrowers experiencing 
financial difficulty.'' The FDIC is proposing to expressly define 
restructured loans in the underperforming assets ratio to include 
``modifications to borrowers experiencing financial difficulty.'' The 
FDIC is also proposing to amend the definition of a refinance for the 
purposes of determining whether a loan is a higher-risk C&I loan or a 
higher-risk consumer loan, both elements of the higher-risk assets 
ratio. Under the proposal, a refinance would not include modifications 
to a loan that otherwise would meet the definition of a refinance, but 
that result in the classification of a loan as a modification to 
borrowers experiencing financial difficulty. This proposal would not 
affect the small bank deposit insurance assessment system.

B. Underperforming Assets Ratio

    The FDIC proposes to amend the underperforming assets ratio used in 
the large and highly complex bank pricing scorecards to conform to the 
updated accounting standards in ASU 2022-02. The amended text 
explicitly defines restructured loans for large and highly complex 
banks that have adopted CECL and ASU 2022-02 as modifications to 
borrowers experiencing financial difficulty. For the remaining large 
and highly complex banks that have not yet adopted CECL and ASU 2022-
02, the FDIC would continue to use TDRs for restructured loans, and the 
amended text would explicitly define restructured loans for these banks 
as TDRs.
    The FDIC has included restructured loans in the underperforming 
assets ratio since the introduction of the large and highly complex 
bank scorecards in 2011. Restructured loans, in the context of the 
underperforming assets measure, typically present an elevated level of 
credit risk because they represent loans to borrowers unable to perform 
according to the original contractual terms. The FDIC believes it is 
important to capture such elevated credit risk in its measurement of 
credit quality. The FDIC believes the accounting term introduced by 
FASB in ASU 2022-02, ``modifications to borrowers experiencing 
financial difficulty,'' will provide a similar and meaningful indicator 
of credit risk.

C. Higher-Risk Assets Ratio

    The FDIC proposes to amend the definition of a refinance, in 
determining whether a loan is a higher-risk C&I loan or a higher-risk 
consumer loan for deposit insurance assessment purposes, to conform to 
the updated accounting standards in ASU 2022-02. Specifically, a 
refinance of a C&I loan would not include a modification or series of 
modifications to a commercial loan that would otherwise meet the 
definition of a refinance, but that result in the classification of a 
loan as a modification to borrowers experiencing financial difficulty, 
for a large or highly complex bank that has adopted CECL and ASU 2022-
02, or that result in the classification of a loan as a TDR, for all 
remaining large and highly complex banks. For purposes of higher-risk 
consumer loans, a refinance would not include modifications to a loan 
that would otherwise meet the definition of a refinance, but that 
result in the classification of a loan as a modification to borrowers 
experiencing financial difficulty, for a large or highly complex bank 
that has adopted CECL and ASU 2022-02, or that result in the 
classification of a loan as a TDR, for all remaining large and highly 
complex banks.
    Question 1: The FDIC invites comment on its proposal to include 
modifications to borrowers experiencing financial difficulty in the 
definition of restructured loans, used in part to determine the 
underperforming assets ratio, and in the definition of refinance, used 
in part to determine the higher-risk assets ratio. Does the proposal 
appropriately meet the objective to incorporate updated accounting 
standards under ASU 2022-02 into the large and highly complex bank 
scorecards?

IV. Expected Effects

    As of December 31, 2021, the FDIC insured 148 banks that were 
classified as large or highly complex for deposit insurance assessment 
purposes, and that would be affected by this proposed rule.\19\ The 
FDIC expects most of these institutions will adopt CECL by January 1, 
2023, the proposed effective date of the rule.
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    \19\ FDIC Call Report data December 31, 2021.
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    The primary expected effect of the proposed rule is the change in 
underperforming assets, and consequent change in assessment rates, that 
could occur as a result of the difference between the amount of TDRs 
that most banks are currently reporting and the amount of modifications 
to borrowers experiencing financial difficulty that banks will report 
upon adoption of ASU 2022-02. The effect of this proposed rule on 
assessments paid by large and highly complex banks is difficult to 
estimate since most banks are not yet reporting modifications to 
borrowers experiencing financial difficulty, and the FDIC does not know 
how the amount of reported modifications to borrowers experiencing 
financial difficulty will compare to the amount of TDRs that affected 
banks report.
    In general, the FDIC expects that the initial amount of 
modifications made to borrowers experiencing financial difficulty will 
be lower than previously

[[Page 45026]]

reported TDRs. This is because under ASU 2022-02, reporting of 
modifications to borrowers experiencing financial difficulty should be 
applied prospectively and would therefore apply only to modifications 
made after a bank adopts the standard. However, in the long term it is 
possible that the amount of modifications to borrowers experiencing 
financial difficulty could be higher or lower than the amount of TDRs 
that banks would have reported prior to adoption of ASU 2022-02. 
Therefore, under the proposed rule, the underperforming assets ratio 
could be higher or lower due to the adoption of ASU 2022-02, and the 
resulting ratio may or may not affect an individual bank's assessment 
rate, depending on whether it is the binding ratio for the credit 
quality measure.
    The FDIC does not have the information necessary to estimate the 
expected effects of the proposal to incorporate the new accounting 
standard into the large and highly complex bank scorecards. However, 
the following analysis illustrates a range of potential outcomes based 
on TDRs reported prior to ASU 2022-02, as the amount of modifications 
to borrowers experiencing financial difficulty could be higher, lower, 
or similar to previously reported TDRs. The analysis shows the effect 
on assessments of higher or lower TDRs in calculating the 
underperforming assets ratio for deposit insurance assessment purposes.
    The FDIC calculated some illustrative examples of the effect on 
assessments if modifications made to borrowers experiencing financial 
difficulty are lower than certain amounts of previously reported TDRs. 
For example, if all large and highly complex banks had reported zero 
TDRs as of December 31, 2021, before FASB issued ASU 2022-02, the 
impact on the underperforming assets ratio would have reduced total 
deposit insurance assessment revenue by an annualized amount of 
approximately $90 million; if modifications were 50 percent lower than 
TDRs reported as of December 31, 2021, annualized assessments would 
have decreased by $52 million.
    Alternatively, as an extreme and unlikely scenario, if all large 
and highly complex banks had reported zero TDRs during a period when 
overall risk in the banking industry was higher, such as December 31, 
2011, the resulting underperforming assets ratio would have reduced 
total deposit insurance assessment revenue by an annualized amount of 
approximately $957 million. Between 2015 and 2019, if TDRs were zero, 
the resulting underperforming assets ratio would have reduced total 
deposit insurance assessment revenue by about $279 million annually, on 
average.
    Over time, however, under ASU 2022-02 large and highly complex 
banks will begin to report modifications to borrowers experiencing 
financial difficulties. As noted above, the effect on assessments will 
depend on how the newly reported modifications compare to the TDRs that 
would have been reported under the prior accounting standard. For 
example, if all large and highly complex banks had reported 
modifications to borrowers experiencing financial difficulty that were 
25 percent greater than the TDRs reported as of December 31, 2021, the 
impact on the underperforming assets ratio would have increased total 
deposit insurance assessment revenue by an annualized amount of 
approximately $30 million; if the modifications exceeded TDRs by 50 
percent, annualized assessments would have increased by $65 million; 
and if the modifications exceeded TDRs by 100 percent, annualized 
assessments would have increased by $137 million.
    The analysis presented above serves as an illustrative example of 
potential effects of the proposed rule. The analysis does not estimate 
potential future modifications to borrowers experiencing financial 
difficulty or how those amounts, once reported, will compare to 
previously reported TDRs for a few reasons. First, banks were granted 
temporary relief from reporting TDRs that were modified due to the 
COVID-19 pandemic, so recent reporting of TDRs is likely lower than it 
may otherwise have been.\20\ Second, the amount of modifications or 
restructurings made by large or highly complex banks vary based on 
economic conditions and future economic conditions are uncertain. 
Third, a restructuring of a debt constitutes a TDR if the creditor for 
economic or legal reasons related to the debtor's financial 
difficulties grants a concession to the debtor that it would not 
otherwise consider, while a modification to borrowers experiencing 
financial difficulty is not evaluated based on whether or not a 
concession has been granted. Finally, future Call Report revisions and 
instructions on how modifications to borrowers experiencing financial 
difficulties should be reported will affect the future reported amount 
of modifications to borrowers experiencing financial difficulty.
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    \20\ On March 27, 2020, the Coronavirus Aid, Relief, and 
Economic Security Act (CARES Act) was signed into law. Section 4013 
of the CARES Act, ``Temporary Relief From Troubled Debt 
Restructurings,'' provided banks the option to temporarily suspend 
certain requirements under U.S. GAAP related to TDRs to account for 
the effects of COVID-19. Division N of the Consolidated 
Appropriations Act, 2021 (Title V, subtitle C, section 541) was 
signed into law on December 27, 2020, extending the provisions in 
Section 4013 of the CARES Act to January 1, 2022. This relief 
applied to certain loans modified between March 1, 2020 and January 
1, 2022.
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    With regard to the higher-risk assets ratio, the effect on 
assessments paid by large and highly complex banks is likely to be more 
muted. The assessment regulations define a higher-risk C&I or consumer 
loan as a loan or refinance that meets certain risk criteria. The 
proposed rule would exclude modifications to borrowers experiencing 
financial difficulty from the definition of a refinance for purposes of 
the higher-risk assets ratio. As a result, if a modification to a C&I 
or consumer loan results in the classification of the loan as a TDR, 
under the current regulations, or as a modification to borrowers 
experiencing financial difficulty, under the proposed rule, a large or 
highly complex bank would not have to re-evaluate whether the modified 
loan meets the definition of a higher-risk asset. For example, if a 
higher-risk C&I loan was subsequently modified as a TDR or modification 
to borrowers experiencing financial difficulty, it would not be 
considered a refinance and, therefore, would continue to be considered 
a higher-risk asset. Conversely, if a C&I loan that does not meet the 
definition of a higher-risk asset was subsequently modified as a TDR or 
modification to borrowers experiencing financial difficulty, it would 
not be considered a refinance and, therefore, would not have to be re-
evaluated to determine if it meets the definition of a higher-risk 
asset. The FDIC assumes that these possible outcomes are offsetting and 
the change to the rule will have minimal to no effect on deposit 
insurance assessments for large and highly complex banks.
    The proposed rule would pose no additional reporting burden for 
large and highly complex banks.
    Question 2: The FDIC invites comments on the expected effects of 
the proposal on large and highly complex institutions.

V. Alternatives Considered

    The FDIC considered two reasonable and possible alternatives as 
described below. On balance, the FDIC believes the current proposal 
would determine deposit insurance assessment rates for large and highly 
complex banks in the most appropriate, accurate, and straightforward 
manner.
    One alternative would be to require banks to continue to report 
TDRs specifically for deposit insurance

[[Page 45027]]

assessment purposes, even after they have adopted CECL and ASU 2022-02. 
This alternative would maintain consistency of the data used in the 
underperforming assets ratio and higher-risk assets ratio with prior 
reporting periods. However, this alternative would impose additional 
reporting burden on large and highly complex banks. This alternative 
would also fail to recognize the potential usefulness of the new data 
on modifications to borrowers experiencing financial difficulty. 
Ultimately, the FDIC does not believe any benefits from continued 
reporting of TDRs expressly for assessment purposes would justify the 
cost to affected banks.
    The FDIC also considered a second alternative: removing 
restructured loans from the definition of underperforming assets 
entirely and not incorporating the new data on modifications to 
borrowers experiencing financial difficulty. Similar to the first 
alternative, this second alternative would apply uniformly to all large 
and highly complex banks, regardless of their early adoption status. 
However, this alternative fails to recognize that data on modifications 
to borrowers experiencing financial difficulty provide a meaningful 
indicator of credit risk throughout economic cycles and should be 
captured in credit quality measures such as the underperforming assets 
ratio and the higher-risk assets ratio. The FDIC believes that the new 
modifications data required under ASU 2022-02 can provide valuable 
information and would not impose additional reporting burden. 
Incorporating this new data in place of TDRs would be the most 
reasonable option to ensure that large and highly complex banks are 
assessed fairly and accurately, all else equal.
    Question 3: The FDIC invites comment on the reasonable and possible 
alternatives described in this proposed rule. Are there other 
reasonable and possible alternatives that the FDIC should consider?

VI. Comment Period, Effective Date, and Application Date

    The FDIC is issuing this proposal with a 30-day comment period. 
Following the comment period, the FDIC expects to issue a final rule 
with an effective date of January 1, 2023, and applicable to the first 
quarterly assessment period of 2023 (i.e., January 1-April 1, 2023). 
Most institutions that have implemented CECL, will adopt FASB's ASU 
2022-02 in 2023, unless an institution chooses to early adopt in 2022. 
Institutions (those with a calendar year fiscal year) implementing CECL 
on January 1, 2023, will also adopt, FASB's ASU 2022-02 at that time. 
Therefore, by the first quarter of 2023, ASU 2022-02 also will be in 
effect for most, if not all, large and highly complex banks. The FDIC 
believes that coordinating the assessment system amendments to conform 
to the new accounting standards will promote a more efficient 
transition and will result in affected banks reporting their data in a 
consistent manner based on the correct accounting concepts.

VII. Request for Comment

    The FDIC is requesting comment on all aspects of the notice of 
proposed rulemaking, in addition to the specific requests for comment 
above.

VIII. Administrative Law Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires an agency, 
in connection with a proposed rule, to prepare and make available for 
public comment an initial regulatory flexibility analysis that 
describes the impact of a proposed rule on small entities.\21\ 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 $750 
million.\22\ Certain types of rules, such as rules relating to rates, 
corporate or financial structures, or practices relating to such rates 
or structures, are expressly excluded from the definition of ``rule'' 
for purposes of the RFA.\23\ Because the proposed 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 proposed rule is not subject to the RFA. 
Nonetheless, the FDIC is voluntarily presenting information in this RFA 
section.
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    \21\ 5 U.S.C. 601 et seq.
    \22\ The SBA defines a small banking organization as having $750 
million or less in assets, where an organization's ``assets are 
determined by averaging the assets reported on its four quarterly 
financial statements for the preceding year.'' See 13 CFR 121.201 
(as amended by 87 FR 18627, effective May 2, 2022). In its 
determination, the SBA counts the receipts, employees, or other 
measure of size of the concern whose size is at issue and all of its 
domestic and foreign affiliates. See 13 CFR 121.103. Following these 
regulations, the FDIC uses a covered entity's affiliated and 
acquired assets, averaged over the preceding four quarters, to 
determine whether the covered entity is ``small'' for the purposes 
of RFA.
    \23\ 5 U.S.C. 601.
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    Based on Call Report data as of December 31, 2021, the FDIC insures 
4,848 IDIs, of which 3,478 are defined as small entities by the terms 
of the RFA.\24\ The proposed rule, however, would apply only to 
institutions with $10 billion or greater in total assets which, by 
definition, do not meet the criteria to be considered small entities 
for the purposes of the RFA. Since no small entities would be affected 
by the proposed rule, the FDIC certifies that the proposed rule would 
not have a significant economic effect on a substantial number of small 
entities.
---------------------------------------------------------------------------

    \24\ FDIC Call Report data, December 31, 2021.
---------------------------------------------------------------------------

B. Riegle Community Development and Regulatory Improvement Act

    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.\25\ 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.\26\
---------------------------------------------------------------------------

    \25\ 12 U.S.C. 4802(a).
    \26\ 12 U.S.C. 4802(b).
---------------------------------------------------------------------------

    The proposed rule would not impose additional reporting, 
disclosure, or other new requirements on insured depository 
institutions, including small depository institutions, or on the 
customers of depository institutions. Accordingly, section 302 of 
RCDRIA does not apply. Nevertheless, the requirements of RCDRIA have 
been considered in setting the proposed effective date. The FDIC 
invites comments that will further inform its consideration of RCDRIA.

C. 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

[[Page 45028]]

a currently valid Office of Management and Budget (OMB) control 
number.\27\ The FDIC's OMB control numbers for its assessment 
regulations are 3064-0057, 3064-0151, and 3064-0179. The proposed 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 proposed 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. Proposed changes to the Call Report forms and 
instructions will be addressed in a separate Federal Register notice.
---------------------------------------------------------------------------

    \27\ 44 U.S.C. 3501-3521.
---------------------------------------------------------------------------

D. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \28\ 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 invites your comments on how to make this proposed rule easier 
to understand. For example:
---------------------------------------------------------------------------

    \28\ Public Law 106-102, section 722, 113 Stat. 1338, 1471 
(1999), 12 U.S.C. 4809.
---------------------------------------------------------------------------

     Has the FDIC organized the material to suit your needs? If 
not, how could the material be better organized?
     Are the requirements in the proposed regulation clearly 
stated? If not, how could the regulation be stated more clearly?
     Does the proposed regulation contain language or jargon 
that is unclear? If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand?

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 proposes to amend 12 CFR part 327 as follows:

PART 327--ASSESSMENTS

0
1. The authority for 12 CFR part 327 continues to read as follows:

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

0
2. Amend appendix A to subpart A in section IV, as proposed to be 
redesignated on July 1, 2022, at 87 FR 39409, by:
0
a. In the entries for ``Balance Sheet Liquidity Ratio'', ``Potential 
Losses/Total Domestic Deposits (Loss Severity Measure)'', and ``Market 
Risk Measure for Highly Complex Institutions'', redesignating footnotes 
5, 6, and 7 as footnotes 6, 7, and 8, respectively;
0
b. Redesignating footnotes 5, 6, and 7 as footnotes 6, 7, and 8 at the 
end of the table;
0
c. Revising the entry for ``Credit Quality Measure''; and
0
d. Adding a new footnote 5 at the end of the table.
    The revision and addition read as follows:

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

* * * * *

                                      VI. Description of Scorecard Measures
----------------------------------------------------------------------------------------------------------------
         Scorecard measures \1\                                        Description
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
Credit Quality Measure.................  The credit quality score is the higher of the following two scores:
(1) Criticized and Classified Items/     Sum of criticized and classified items divided by the sum of Tier 1
 Tier 1 Capital and Reserves \2\.         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        Sum of loans that are 30 days or more past due and still accruing
 Capital and Reserves \2\.                interest, nonaccrual loans, restructured loans \5\ (including
                                          restructured 1-4 family loans), and ORE, excluding the maximum amount
                                          recoverable from the U.S. Government, its agencies, or government-
                                          sponsored enterprises, under guarantee or insurance provisions,
                                          divided by a sum of Tier 1 capital and reserves.
 
                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------
\1\ The FDIC retains the flexibility, as part of the risk-based assessment system, without the necessity of
  additional notice-and-comment rulemaking, to update the minimum and maximum cutoff values for all measures
  used in the scorecard. The FDIC may update the minimum and maximum cutoff values for the higher-risk assets to
  Tier 1 capital and reserves ratio in order to maintain an approximately similar distribution of higher-risk
  assets to Tier 1 capital and reserves ratio scores as reported prior to April 1, 2013, or to avoid changing
  the overall amount of assessment revenue collected. 76 FR 10672, 10700 (February 25, 2011). The FDIC will
  review changes in the distribution of the higher-risk assets to Tier 1 capital and reserves ratio scores and
  the resulting effect on total assessments and risk differentiation between banks when determining changes to
  the cutoffs. The FDIC may update the cutoff values for the higher-risk assets to Tier 1 capital and reserves
  ratio more frequently than annually. The FDIC will provide banks with a minimum one quarter advance notice of
  changes in the cutoff values for the higher-risk assets to Tier 1 capital and reserves ratio with their
  quarterly deposit insurance invoice.
\2\ The applicable portions of the current expected credit loss methodology (CECL) transitional amounts
  attributable to the allowance for credit losses on loans and leases held for investment and added to retained
  earnings for regulatory capital purposes pursuant to the regulatory capital regulations, as they may be
  amended from time to time (12 CFR part 3, 12 CFR part 217, 12 CFR part 324, 85 FR 61577 (Sept. 30, 2020), and
  84 FR 4222 (Feb. 14, 2019)), will be removed from the sum of Tier 1 capital and reserves.
 * * * * * * *

[[Page 45029]]

 
\4\ A marked-to-market counterparty position is equal to the sum of the net marked-to-market derivative
  exposures for each counterparty. The net marked-to-market derivative exposure equals the sum of all positive
  marked-to-market exposures net of legally enforceable netting provisions and net of all collateral held under
  a legally enforceable CSA plus any exposure where excess collateral has been posted to the counterparty. For
  purposes of the Criticized and Classified Items/Tier 1 Capital and Reserves definition a marked-to-market
  counterparty position less any credit valuation adjustment can never be less than zero.
\5\ Restructured loans include troubled debt restructurings and modifications to borrowers experiencing
  financial difficulty, as these terms are defined in the glossary to the Call Report, as they may be amended
  from time to time.

* * * * *
0
3. Amend appendix C to subpart A by:
0
a. In section I.A.2., under the heading ``Definitions'', revising the 
entry for ``Refinance''; and
0
b. In section I.A.3., revising the ``Refinance'' section preceding 
section I.A.4.
    The revisions read as follows:

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

    I. * * *
    A. * * *
    2. * * *

Definitions

* * * * *

Refinance

    For purposes of a C&I loan, a refinance includes:
    (a) Replacing an original obligation by a new or modified 
obligation or loan agreement;
    (b) Increasing the master commitment of the line of credit (but 
not adjusting sub-limits under the master commitment);
    (c) Disbursing additional money other than amounts already 
committed to the borrower;
    (d) Extending the legal maturity date;
    (e) Rescheduling principal or interest payments to create or 
increase a balloon payment;
    (f) Releasing a substantial amount of collateral;
    (g) Consolidating multiple existing obligations; or
    (h) Increasing or decreasing the interest rate.
    A refinance of a C&I loan does not include a modification or 
series of modifications to a commercial loan other than as described 
above or modifications to a commercial loan that would otherwise 
meet this definition of refinance, but that result in the 
classification of a loan as a troubled debt restructuring (TDR) or a 
modification to borrowers experiencing financial difficulty, as 
these terms are defined in the glossary of the Call Report 
instructions, as they may be amended from time to time.
* * * * *
    3. * * *

Refinance

    For purposes of higher-risk consumer loans, a refinance 
includes:
    (a) Extending new credit or additional funds on an existing 
loan;
    (b) Replacing an existing loan with a new or modified 
obligation;
    (c) Consolidating multiple existing obligations;
    (d) Disbursing additional funds to the borrower. Additional 
funds include a material disbursement of additional funds or, with 
respect to a line of credit, a material increase in the amount of 
the line of credit, but not a disbursement, draw, or the writing of 
convenience checks within the original limits of the line of credit. 
A material increase in the amount of a line of credit is defined as 
a 10 percent or greater increase in the quarter-end line of credit 
limit; however, a temporary increase in a credit card line of credit 
is not a material increase;
    (e) Increasing or decreasing the interest rate (except as noted 
herein for credit card loans); or
    (f) Rescheduling principal or interest payments to create or 
increase a balloon payment or extend the legal maturity date of the 
loan by more than six months.
    A refinance for this purpose does not include:
    (a) A re-aging, defined as returning a delinquent, open-end 
account to current status without collecting the total amount of 
principal, interest, and fees that are contractually due, provided:
    (i) The re-aging is part of a program that, at a minimum, 
adheres to the re-aging guidelines recommended in the interagency 
approved Uniform Retail Credit Classification and Account Management 
Policy; \[12]\
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    \[12]\ Among other things, for a loan to be considered for re-
aging, the following must be true: (1) The borrower must have 
demonstrated a renewed willingness and ability to repay the loan; 
(2) the loan must have existed for at least nine months; and (3) the 
borrower must have made at least three consecutive minimum monthly 
payments or the equivalent cumulative amount.
---------------------------------------------------------------------------

    (ii) The program has clearly defined policy guidelines and 
parameters for re-aging, as well as internal methods of ensuring the 
reasonableness of those guidelines and monitoring their 
effectiveness; and
    (iii) The bank monitors both the number and dollar amount of re-
aged accounts, collects and analyzes data to assess the performance 
of re-aged accounts, and determines the effect of re-aging practices 
on past due ratios;
    (b) Modifications to a loan that would otherwise meet this 
definition of refinance, but result in the classification of a loan 
as a TDR or modification to borrowers experiencing financial 
difficulty;
    (c) Any modification made to a consumer loan pursuant to a 
government program, such as the Home Affordable Modification Program 
or the Home Affordable Refinance Program;
    (d) Deferrals under the Servicemembers Civil Relief Act;
    (e) A contractual deferral of payments or change in interest 
rate that is consistent with the terms of the original loan 
agreement (e.g., as allowed in some student loans);
    (f) Except as provided above, a modification or series of 
modifications to a closed-end consumer loan;
    (g) An advance of funds, an increase in the line of credit, or a 
change in the interest rate that is consistent with the terms of the 
loan agreement for an open-end or revolving line of credit (e.g., 
credit cards or home equity lines of credit);
    (h) For credit card loans:
    (i) Replacing an existing card because the original is expiring, 
for security reasons, or because of a new technology or a new 
system;
    (ii) Reissuing a credit card that has been temporarily suspended 
(as opposed to closed);
    (iii) Temporarily increasing the line of credit;
    (iv) Providing access to additional credit when a bank has 
internally approved a higher credit line than it has made available 
to the customer; or
    (v) Changing the interest rate of a credit card line when 
mandated by law (such as in the case of the Credit CARD Act).
* * * * *

Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, on July 19, 2022.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2022-15763 Filed 7-26-22; 8:45 am]
BILLING CODE 6714-01-P