FDIC Proposes Rule to Resolve Double-Counting Associated with CECL
FDIC proposed a rule that would amend the risk-based deposit insurance assessment system applicable to all large insured depository institutions, including highly complex insured depository institutions. The proposal is aimed to address the effects of temporary deposit insurance assessment resulting from certain optional regulatory capital transition provisions related to the implementation of the current expected credit losses (CECL) methodology. The primary objective of this proposal is to remove a double-counting issue in several financial measures used to determine deposit insurance assessments for large and highly complex banks; the double-counting could result in a deposit insurance assessment rate for a large or highly complex bank that does not accurately reflect the risk of a bank to the deposit insurance fund, all else equal. Comments must be received no later than January 06, 2021.
FDIC statutorily required to set deposit insurance assessments based on risk and, through this proposal, FDIC aims to ensure that banks are assessed in a manner that is fair and accurate. The proposal would amend 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 assessments for large and highly complex banks. Certain financial measures are calculated by summing Tier 1 capital, which includes the CECL transitional amounts, and reserves, already reflecting 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 and highly complex banks. The proposal would also adjust the calculation of the loss severity measure to remove the double-counting of a portion of the CECL transitional amounts for a large or highly complex bank.
This proposal would amend the deposit insurance system applicable to large and highly complex banks only and it would 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. In calculating another measure—that is, the Tier 1 leverage ratio—used to determine assessment rates for all insured depository institutions, FDIC would 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. The proposed amendments to the deposit insurance assessment system and any changes to reporting requirements pursuant to this proposal would be required only while the regulatory capital relief is reflected in the regulatory reports of banks.
Related Link: Federal Register Notice
Comment Due Date: January 06, 2021
Keywords: Americas, US, Banking, CECL, Regulatory Capital, Tier 1 Capital, Deposit Insurance, Leverage Ratio, Large Banks, FDIC
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Anna Krayn
CECL adoption expert; engagement manager for loss estimation, internal risk capability enhancement, and counterparty credit risk management
Previous Article
ESMA Publishes XBRL Taxonomy and Conformance Suite to Implement ESEFRelated Articles
HKMA Finalizes Policy Modules on Group-Wide Approach and Remuneration
The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.
EBA Guide to Monitor Threshold for Intermediate Parent Undertakings
The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).
PRA Finalizes Approach to Supervision of International Banks
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
FCA Issues PS21/9 on Implementation of Investment Firms Regime
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
EBA Proposes Regulatory Standards to Identify Shadow Banking Entities
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
IOSCO Proposes Recommendations on ESG Ratings and Data Providers
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
ESMA Group Issues Recommendations on RFR Switch in Interdealer Market
The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.
ECB Study Assesses Impact of Basel III Finalization Package
The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.
ISDA Finds FRTB Results in Higher Capital Charges for Carbon Trading
The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.
PRA Updates Remuneration Policy Statement Templates and Tables
The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.
