OCC Updates Booklet on Credit Concentrations in Comptroller's Handbook
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.
Related Links
Keywords: Americas, US, Banking, Credit Risk, CECL, Concentration Risk, OCC
Featured Experts
Laurent Birade
Advises U.S. and Canadian financial institutions on risk and finance integration, CCAR/DFAST stress testing, IFRS9 and CECL credit loss reserving, and credit risk practices.
Jun Chen
A well-recognized researcher in the field; offers many years of experience in the real estate finance industry, and leads research efforts in expanding credit risk analytics to commercial real estate.
Sohini Chowdhury
Leverages deep expertise of macroeconomic forecasting and consumer credit modeling to advise executives on stress testing and CECL/IFRS 9.
Related Articles
EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
BCBS and EBA Publish Results of Basel III Monitoring Exercise
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
PRA Updates Timeline for Final Basel III Rules, Issues Other Updates
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
US Treasury Sets Out Principles for Net-Zero Financing
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
EC Launches Survey on G7 Principles on Generative AI
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
ISSB Sustainability Standards Expected to Become Global Baseline
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
BCBS Assesses NSFR and Large Exposures Rules in US
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.
