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
Previous ArticleESMA Publishes XBRL Taxonomy and Conformance Suite to Implement ESEF
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.