US Agencies Issue Updates on Reporting, Resolution Planning, and TDR

FED and FDIC announced the results of their joint review of the 2021 resolution plans of eight largest domestic banking organizations. The eight firms that were evaluated are Bank of America Corporation, Bank of New York Mellon Corporation, Citigroup Inc, The Goldman Sachs Group, JPMorgan Chase & Co, Morgan Stanley, State Street Corporation, and Wells Fargo & Company. Out of these eight firms, the agencies identified a shortcoming in Citigroup Inc's resolution plan.  related to data quality and data management concerns previously identified by FED in its October 2020 enforcement action. The feedback letters also note the expectation that the next plan review will include expanded testing of the resolution capabilities of firms. The agencies have provided a feedback letter to each firm. The letters note continued development of firms' resolution strategies and capabilities and the expectation that this work will continue. The feedback letters also note the expectation that the next plan review will include expanded testing of the resolution capabilities of firms. For Citigroup, the letter notes serious weaknesses in the firm’s data management practices and sets out the actions required by the agencies. A plan to address the shortcoming is due to the agencies by January 31, 2023. Furthermore, as per the Resolution Plan Rule, the covered company is required to submit a full resolution plan on or before July 01, 2023. The Agencies also expect to engage with the company prior to submission of the 2023 Full Plan to prepare for the review, including through planning for capabilities assessments and testing.

FDIC has finalized a rule, published in the Federal Register, to amend the assessment regulations applicable to large and highly complex institutions that have adopted the CECL methodology and the FASB Accounting Standards Update 2022-02 by including “modifications to borrowers experiencing financial difficulty” in the description of the underperforming assets ratio and definitions used in the higher-risk assets ratio. The term “modifications to borrowers experiencing financial difficulty” will be used in the amended text of the underperforming assets ratio and higher-risk assets ratio. The final rule defines restructured loans, a component of the underperforming assets ratio, to include “modifications to borrowers experiencing financial difficulty,” which FDIC will use to calculate the deposit insurance assessments for large and highly complex insured depository institutions that have adopted ASU 2022-02. The rule also defines TDRs, which FDIC will continue to use for the remaining large and highly complex insured depository institutions. The final rule amends the definition of a refinance for the purposes of determining whether a loan is a higher-risk commercial and industrial loan or a higher-risk consumer loan, both elements of the higher-risk assets ratio. Under the final rule, a refinance does not include a modification to a loan that would otherwise meet the definition of a refinance, but that results in the classification of a loan as a “modification to borrowers experiencing financial difficulty,” for large or highly complex institutions that have adopted ASU 2022-02, or that results in the classification of a loan as a TDR, for all remaining large or highly complex institutions. The final rule will be effective from January 01, 2023.

Related Links

• Final Notice on FR Y-15
• Proposal on Credit Risk Retention Rule
• Proposal on Stress Testing Requirements
• Overview of OCC Stress Test Requirements
• FED on Resolution Plan Reviews
• FDIC Letter on TDR Update
• Federal Register Notice on TDR

Keywords: Americas, US, Banking, Reporting, Systemic Risk, G-SIBs, Regulation RR, Credit Risk Retention, Credit Risk, FRY15, Resolution Framework, Resolution Planning, Citibank, CECL, Troubled Debt Restructuring, Basel, Stress Testing, FDIC, FED, OCC