Notice of Proposed Rulemaking on Assessments, Amendments to Incorporate Troubled Debt Restructuring Accounting Standards Update

Summary:

The Federal Deposit Insurance Corporation (FDIC) issued a notice of proposed rulemaking (proposal) to incorporate updated accounting standards in the risk-based deposit insurance assessment system applicable to all large and highly complex insured depository institutions. The proposal would amend the assessment regulations to include a new term, “modifications to borrowers experiencing financial difficulty,” in two financial measures—the underperforming assets ratio and higher-risk assets ratio—used to determine deposit insurance assessments for large and highly complex insured depository institutions.

Statement of Applicability: The contents of, and material referenced in, this FIL do not apply to FDIC-insured and/or FDIC- supervised institutions with less than $10 billion in total consolidated assets.

Highlights:

• On March 31, 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2022-02 (ASU 2022-02), “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures,” ASU 2022-02, which eliminates the recognition and measurement guidance for troubled debt restructurings (TDRs) for all institutions once they adopted the Current Expected Credit Losses (CECL) methodology and, instead, introduces enhanced financial statement disclosure requirements related to “modifications to borrowers experiencing financial difficulty.”
• On July 19, 2022, the FDIC Board of Directors approved a notice of proposed rulemaking to amend the assessment regulations applicable to large and highly complex institutions that have adopted the CECL methodology and FASB’s ASU 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 FDIC and other members of the Federal Financial Institutions Examination Council (FFIEC) are planning to revise the Call Report forms and instructions to include references to “modifications to borrowers experiencing financial difficulty.” The term “modifications to borrowers experiencing financial difficulty,“ as it will be defined in the Glossary of the Call Report instructions, will be used in the proposed amendments to the underperforming assets ratio and higher-risk assets ratio.
• The proposal would define restructured loans, a component of the underperforming assets ratio, as “modifications to borrowers experiencing financial difficulty” for large or highly complex institutions that have adopted ASU 2022-02, and would continue to use TDRs for the remaining large or highly complex institutions.
• The proposal would amend 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 proposal, a refinance would 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.
• Comments on the proposed rule will be accepted 30 days after publication in the Federal Register .