OCC issued the revised “Concentrations of Credit” booklet (Version 2.0) of the Comptroller’s Handbook. The revised booklet replaces version 1.0 of the “Concentrations of Credit” booklet and rescinds OCC Bulletin 2011-48, “Credit Policy: Concentrations of Credit: Revised Booklet,” which transmitted version 1.0 of the booklet in December 2011.
The booklet discusses risks associated with concentrations of credit and sound concentration risk management processes. It also discusses identifying exposures that constitute concentrations of credit. Examiners should consider conclusions about concentration risk management when assigning capital, asset quality, liquidity, and management component ratings. The revised booklet is relevant for Chief Executive Officers of all national banks, federal savings associations, and federal branches and agencies, among others, and it:
- changes the supervisory calculation for credit concentration ratios for banks that have implemented the current expected credit loss (CECL) transition rule to avoid double-counting the allowance for credit losses in the denominator.
- replaces the term “criticized” with “special mention” for consistency with Banking Bulletin (BB) 1993-35, “Interagency Definition of Special Mention Assets.”
- reflects relevant OCC issuances published since this booklet was last issued.
- reflects changes to laws and regulations that occurred since this booklet was last issued.
- clarifies applicability of references to covered savings associations.
- includes clarifying edits regarding supervisory guidance, sound risk management practices, or legal language.
- revises certain content for general clarity.
- removes the NAICS code listing, as this information is readily available.
Concentrations are calculated as a percentage, using tier 1 capital plus either the allowance for loan and leases losses or the allowance for credit losses (ACL), as appropriate, as the denominator. For banks that have adopted the 2019 or 2020 CECL capital transition rule (refer to 12 CFR 3.301), a portion of the ACL may be included as a component of tier 1 capital for the years that the bank reported its regulatory capital ratios using the allowable capital relief provided by those rules. To eliminate potential double-counting of the ACL in the denominator for purposes of measuring concentrations, the amount of the ACL included as a component of tier 1 capital during the period when a bank reported regulatory capital ratios using the 2019 or 2020 CECL capital transition rule should be subtracted from tier 1 capital. The amount to be subtracted from tier 1 capital is calculated as the difference between retained earnings on Schedule RC “Balance Sheet” (line 26a) and retained earnings on Schedule RC-R, part 1, “Regulatory Capital Components and Ratios” (line 2) of the Consolidated Reports of Condition and Income.
Keywords: Americas, US, Banking, Credit Risk, CECL, Concentration Risk, OCC
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