Federal Register - February 25, 2021
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Source: Federal Register
Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations
11401
4 A marked-to-market counterparty position is equal to the sum of the net marked-to-market derivative exposures for each counterparty. The net marked-to-market derivative exposure equals the sum of all positive marked-to-market exposures net of legally enforceable netting provisions and net of all collateral held under a legally enforceable CSA plus any exposure where excess collateral has been posted to the counterparty.
For purposes of the Criticized and Classified Items/Tier 1 Capital and Reserves definition a marked-to-market counterparty position less any credit valuation adjustment can never be less than zero.
5 Deposit runoff rates for the balance sheet liquidity ratio reflect changes issued by the Basel Committee on Banking Supervision in its December 2010 document, Basel III: International Framework for liquidity risk measurement, standards, and monitoring, http www.bis.org/publ/
bcbs188.pdf.
6 The applicable portions of the CECL transitional amounts attributable to the allowance for credit losses on loans and leases held for investment and added to retained earnings for regulatory capital purposes will be removed from the calculation of the loss severity measure.
7 Market risk is defined in 12 CFR 324.202.
3. Amend Appendix C to Subpart A
by:
a. Redesignating footnotes 2 through 16 as footnotes 3 through 17; and b. Revising the paragraph under the heading, I. Concentration Measures, to read as follows:
Appendix C to Subpart A of Part 327
Description of Concentration Measures I. Concentration Measures The concentration score for large banks is the higher of the higher-risk assets to Tier 1
capital and reserves score or the growthadjusted portfolio concentrations score.1 The concentration score for highly complex institutions is the highest of the higher-risk assets to Tier 1 capital and reserves score, the Top 20 counterparty exposure to Tier 1
capital and reserves score, or the largest counterparty to Tier 1 capital and reserves score.2 The higher-risk assets to Tier 1 capital and reserves ratio and the growth-adjusted portfolio concentration measure are described herein.
1 For the purposes of this Appendix, the term bank means insured depository institution.
2 As described in Appendix A to this subpart, the applicable portions of the current expected credit loss methodology CECL transitional amounts attributable to the allowance for credit losses on loans and leases held for investment and added to retained earnings for regulatory capital purposes pursuant to the regulatory capital regulations, as they may be amended from time to time 12 CFR part 3, 12 CFR part 217, 12 CFR part 324, 85 FR 61577 Sept. 30,
2020, and 84 FR 4222 Feb. 14, 2019, will be removed from the sum of Tier 1 capital and reserves throughout the large bank and highly complex bank scorecards, including in the ratio of Higher-Risk Assets to Tier 1
Capital and Reserves, the Growth-Adjusted Portfolio Concentrations Measure, the ratio of Top 20 Counterparty Exposure to Tier 1
Capital and Reserves, and the Ratio of Largest Counterparty Exposure to Tier 1 Capital and Reserves.
4. In Appendix D to Subpart A, revise the introductory text to read as follows:
Appendix D to Subpart A of Part 327
Description of the Loss Severity Measure The loss severity measure applies a standardized set of assumptions to an institutions balance sheet to measure possible losses to the FDIC in the event of an institutions failure. To determine an institutions loss severity rate, the FDIC first applies assumptions about uninsured deposit and other unsecured liability runoff, and growth in insured deposits, to adjust the size and composition of the institutions liabilities. Assets are then reduced to match any reduction in liabilities.1 The institutions asset values are then further reduced so that the Leverage ratio reaches 2 percent.2 3 In both cases, assets are adjusted pro rata to preserve the institutions asset composition.
Assumptions regarding loss rates at failure for a given asset category and the extent of secured liabilities are then applied to estimated assets and liabilities at failure to determine whether the institution has enough unencumbered assets to cover
domestic deposits. Any projected shortfall is divided by current domestic deposits to obtain an end-of-period loss severity ratio.
The loss severity measure is an average loss severity ratio for the three most recent quarters of data available.
1 In most cases, the model would yield reductions in liabilities and assets prior to failure. Exceptions may occur for institutions primarily funded through insured deposits which the model assumes to grow prior to failure.
2 Of course, in reality, runoff and capital declines occur more or less simultaneously as an institution approaches failure. The loss severity measure assumptions simplify this process for ease of modeling.
3 The applicable portions of the current expected credit loss methodology CECL
transitional amounts attributable to the allowance for credit losses on loans and leases held for investment and added to retained earnings for regulatory capital purposes pursuant to the regulatory capital regulations, as they may be amended from time to time 12 CFR part 3, 12 CFR part 217, 12 CFR part 324, 85 FR 61577 Sept. 30, 2020, and 84 FR 4222 Feb. 14, 2019, will be removed from the calculation of the loss severity measure.
5. In Appendix E to subpart A, under the heading II. Mitigating the Assessment Effects of Paycheck Protection Program Loans for Large or Highly Complex Institutions, revise Table E.2 and paragraph a to read as follows:
TABLE E.2EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR
HIGHLY COMPLEX INSTITUTIONS
Scorecard measures 1
Description
Leverage Ratio
Tier 1 capital for Prompt Corrective Action PCA divided by adjusted average assets based on the definition for prompt corrective action.
The concentration score for large institutions is the higher of the following two scores:
No Exclusion.
Sum of construction and land development C&D loans funded and unfunded, higher-risk commercial and industrial C&I loans funded and unfunded, nontraditional mortgages, higher-risk consumer loans, and higher-risk securitizations divided by Tier 1 capital and reserves. See Appendix C for the detailed description of the ratio.
The measure is calculated in the following steps:
No Exclusion.
Concentration Measure for Large Insured depository institutions excluding Highly Complex Institutions.
1 Higher-Risk Assets/
Tier 1 Capital and Reserves.
2 Growth-Adjusted Portfolio Concentrations.
Exclusions
1 Concentration levels as a ratio to Tier 1 capital and reserves are calculated for each broad portfolio category:
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