US Agencies Adjust Calculations for Credit Concentration Ratio
US Agencies (FDIC, FED, and OCC) decided to adjust the calculation for credit concentration ratios used in the supervisory process. The adjustment is in response to changes in the capital information available after the implementation of the Community Bank Leverage Ratio (CBLR) rule. Effective March 31, 2020, for supervisory purposes, examiners will calculate credit concentration ratios using tier 1 capital plus the appropriate allowance for loan and lease losses or the allowance for credit losses attributed to loans and leases (as applicable) for the denominator.
Effective March 31, 2020, qualifying community banking organizations that elect the CBLR framework are not required to report tier 2 capital, which historically has been a part of the denominator used in calculating credit concentration ratios for supervisory processes. In response to this regulatory change, for supervisory purposes, the agencies are adjusting their calculation for credit concentration ratios. As of March 31, 2020, the agencies' examiners will calculate ratios that measure credit concentrations using:
- Tier 1 capital plus the entire allowance for loan and lease losses as the denominator
- Tier 1 capital plus the portion of the allowance for credit losses attributable to loans and leases as the denominator for banking organizations that have adopted the FASB Accounting Standards Codification Topic 326, Financial Instruments—Credit Losses, which implements the current expected credit loss (CECL) methodology.
These approaches are expected to provide a consistent methodology for calculating these ratios at all insured depository institutions and to approximate the agencies' historical methodology for calculating credit concentration ratios. For banking organizations that have not adopted CECL, the agencies’ examiners will calculate credit concentration ratios using tier 1 capital plus the entire allowance for loan and lease losses as the denominator. This adjustment, which provides a consistent supervisory approach for all banking organizations, applies only to supervisory calculations for credit concentration ratios and does not affect the calculation of total capital for other purposes.
Related Links
Effective Date: March 31, 2020
Keywords: Americas, US, Banking, CBLR Framework, CECL, Tier 1 Capital, Regulatory Capital, Concentration Risk, Financial Instruments, IFRS 9, US Agencies
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.

Anna Krayn
CECL adoption expert; engagement manager for loss estimation, internal risk capability enhancement, and counterparty credit risk management
Previous Article
IAIS Publishes Newsletter for March 2020Related Articles
EU Agencies Update LCR Rule and Macro-Prudential Policy Recommendation
The European Commission (EC) published the Delegated Regulation 2022/786 with regard to the liquidity coverage requirements for credit institutions under the Capital Requirements Regulation (CRR).
EBA Publishes Regulatory Standards to Identify Shadow Banking Entities
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures.
EIOPA Examines Physical Climate Risk Exposure, SII Non-Compliance
The European Insurance and Occupational Pensions Authority (EIOPA) published a report assessing insurers' exposure to physical climate change risks
EC Publishes Results on Review of Web Accessibility Directive
The European Commission (EC) published the results of a public consultation, held in October 2021, on the review of the Web Accessibility Directive.
NGFS Report Explores Quantification of Climate Risk Differentials
The Network for Greening the Financial System (NGFS) published two reports to aid central banks and regulators in their oversight of the financial sector and in their central bank operations
MAS Consults on Adjustment Spreads for Conversion of SOR Contracts
The Monetary Authority of Singapore (MAS) and the SC-STS are jointly consulting, until June 10, 2022, on setting adjustment spreads for the conversion of legacy SOR contracts to SORA reference rate.
OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities
The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.
EBA Proposes Standards to Support Secondary NPL Markets
The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.
EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution
The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).
EBA Issues Standards for Crowdfunding Service Providers Under ECSPR
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.