Assessments, Amendments To Incorporate Troubled Debt Restructuring Accounting Standards Update, 64348-64356 [2022-22986]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 87, Number 204 (Monday, October 24, 2022)]
[Rules and Regulations]
[Pages 64348-64356]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22986]



[[Page 64347]]

Vol. 87

Monday,

No. 204

October 24, 2022

Part IV





Federal Deposit Insurance Corporation





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12 CFR Part 327





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Assessments, Amendments To Incorporate Troubled Debt Restructuring 
Accounting Standards Update; Final Rule

Federal Register / Vol. 87, No. 204 / Monday, October 24, 2022 / 
Rules and Regulations

[[Page 64348]]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AF85


Assessments, Amendments To Incorporate Troubled Debt 
Restructuring Accounting Standards Update

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The Federal Deposit Insurance Corporation is adopting a final 
rule that incorporates updated accounting standards in the risk-based 
deposit insurance assessment system applicable to all large insured 
depository institutions (IDIs), including highly complex IDIs. The FDIC 
calculates deposit insurance assessment rates for large and highly 
complex IDIs based on supervisory ratings and financial measures, 
including the underperforming assets ratio and the higher-risk assets 
ratio, both of which are determined, in part, using restructured loans 
or troubled debt restructurings (TDRs). The final rule includes 
modifications to borrowers experiencing financial difficulty, an 
accounting term recently introduced by the Financial Accounting 
Standards Board (FASB) to replace TDRs, in the underperforming assets 
ratio and higher-risk assets ratio for purposes of deposit insurance 
assessments.

DATES: The final rule is effective January 1, 2023.

FOR FURTHER INFORMATION CONTACT: Scott Ciardi, Chief, Large Bank 
Pricing, 202-898-7079, [email protected]; Ashley Mihalik, Chief, Banking 
and Regulatory Policy, 202-898-3793, [email protected]; Kathryn Marks, 
Counsel, 202-898-3896, [email protected].

SUPPLEMENTARY INFORMATION:

I. Policy Objective and Overview of Final Rule

    The Federal Deposit Insurance Act (FDI Act) requires that the FDIC 
establish a risk-based deposit insurance assessment system.\1\ The 
risk-based assessment system calculates assessments by weighing, among 
other things, the risks attributable to ``different categories and 
concentrations of assets'' and ``any other factors the Corporation 
determines are relevant'' to the risk of a loss to the DIF, as well as 
``the revenue needs of the Deposit Insurance Fund.'' \2\ The purpose of 
this final rule is to address a change to accounting standards that 
affects the FDIC's calculations of risk-based assessments for IDIs.
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    \1\ 12 U.S.C. 1817(b).
    \2\ See Section 7(b)(1)(C) of the FDI Act, 12 U.S.C. 
1817(b)(1)(C).
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    In 2022, the Financial Accounting Standards Board (FASB) eliminated 
the recognition and measurement guidance of certain loans with changes 
to the original terms, known as troubled debt restructurings (TDRs), 
and, instead, introduced new requirements related to financial 
statement disclosure of certain modifications of receivables made to 
borrowers experiencing financial difficulty, or ``modifications to 
borrowers experiencing financial difficulty.'' \3\ TDRs reported by 
large and highly complex IDIs have been used in the FDIC's risk-based 
assessment system as one component in the calculation of a bank's 
overall level of risk.\4\ These restructured loans typically present an 
elevated level of credit risk as the borrowers are not able to perform 
according to the original contractual terms, and the FDIC prices for 
this risk through the large and highly complex bank scorecards.
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    \3\ FASB Accounting Standards Update (ASU) No. 2022-02, 
``Financial Instruments--Credit Losses (Topic 326): Troubled Debt 
Restructurings and Vintage Disclosures,'' March 2022, available at 
https://www.fasb.org/page/getarticle?uid=fasb_Media_Advisory_03-31-22.
    \4\ For deposit insurance assessment purposes, large IDIs are 
generally those that have $10 billion or more in total assets. A 
highly complex IDI is generally defined as an institution that has 
$50 billion or more in total assets and is controlled by a parent 
holding company that has $500 billion or more in total assets, or is 
a processing bank or trust company. See 12 CFR 327.8(f) and (g). As 
used in this final rule, the term ``large bank'' is synonymous with 
``large institution,'' and the term ``highly complex bank'' is 
synonymous with ``highly complex institution,'' as those terms are 
defined in 12 CFR 327.8.
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    In order to ensure that the risk-based assessment system continues 
to capture the risk posed by restructured loans, the FDIC is finalizing 
its proposal to include modifications to borrowers experiencing 
financial difficulty in the large and highly complex bank scorecards, 
as such term will replace TDRs upon adoption of ASU 2022-02. To 
incorporate the updated accounting standards into deposit insurance 
assessments, the final rule defines ``restructured loans'' in the 
underperforming assets ratio to include modifications to borrowers 
experiencing financial difficulty, and includes such modifications in 
the definitions used in the higher-risk assets ratio. Both of these 
ratios are used to determine risk-based deposit insurance assessments 
for large and highly complex banks. Absent the final rule, the FDIC 
would not be able to price for modifications to borrowers experiencing 
financial difficulty, which are restructured loans and a meaningful 
indicator of credit risk, once most institutions adopt ASU 2022-02 and 
updates to the Call Report have been implemented as of March 31, 2023. 
Failure to capture this risk in deposit insurance assessments for large 
and highly complex banks could adversely affect the DIF.

II. Background

A. Deposit Insurance Assessments

    The FDIC charges all IDIs an assessment for deposit insurance equal 
to the IDI's deposit insurance assessment base multiplied by its risk-
based assessment rate.\5\ An IDI's assessment base and assessment rate 
are determined each quarter using supervisory ratings and information 
collected from the Consolidated Reports of Condition and Income (Call 
Report) or the Report of Assets and Liabilities of U.S. Branches and 
Agencies of Foreign Banks (FFIEC 002), as appropriate. Generally, an 
IDI's assessment base equals its average consolidated total assets 
minus its average tangible equity.\6\
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    \5\ See 12 CFR 327.3(b)(1).
    \6\ See 12 CFR 327.5.
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    An IDI's assessment rate is calculated using different methods 
dependent upon whether the IDI is classified for deposit insurance 
assessment purposes as a small, large, or highly complex bank.\7\ Large 
and highly complex banks are assessed using a scorecard approach that 
combines CAMELS ratings and certain forward-looking financial measures 
to assess the risk that a large or highly complex bank poses to the 
Deposit Insurance Fund (DIF).\8\ The score that each large or highly 
complex bank receives is used to determine its deposit insurance 
assessment rate. One scorecard applies to most large banks and another 
applies to highly complex banks. Both scorecards use quantitative 
financial measures that are useful for predicting a large or highly 
complex bank's long-term performance. Two of the measures in the large 
and highly complex bank scorecards, the credit quality measure and the 
concentration measure, are determined using restructured loans or TDRs. 
These measures are described in more detail below.
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    \7\ See 12 CFR 327.8(e), (f), and (g).
    \8\ See 12 CFR 327.16(b); see also 76 FR 10672 (Feb. 25, 2011) 
and 77 FR 66000 (Oct. 31, 2012).
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B. Credit Quality Measure

    Both the large bank and the highly complex bank scorecards include 
a

[[Page 64349]]

credit quality measure. The credit quality measure is the greater of 
(1) the criticized and classified items to the sum of Tier 1 capital 
and reserves score or (2) the underperforming assets to the sum of Tier 
1 capital and reserves score.\9\ Each risk measure, including the 
criticized and classified items ratio and the underperforming assets 
ratio, is converted to a score between 0 and 100 based upon minimum and 
maximum cutoff values.\10\
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    \9\ See 12 CFR 327.16(b)(1)(ii)(A)(2)(iv).
    \10\ See 12 CFR part 327, appendix B.
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    The underperforming assets ratio is described identically in the 
large and highly complex bank scorecards as the sum of loans that are 
30 days or more past due and still accruing interest, nonaccrual loans, 
restructured loans (including restructured 1-4 family loans), and other 
real estate owned (ORE), excluding the maximum amount recoverable from 
the U.S. Government, its agencies, or Government-sponsored agencies, 
under guarantee or insurance provisions, divided by a sum of Tier 1 
capital and reserves.\11\
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    \11\ See 12 CFR part 327, appendix A.
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    The specific data used to identify the ``restructured loans'' 
referenced in the above description are those items that banks disclose 
in their Call Report on Schedule RC-C, Part I, Memorandum items 1.a. 
through 1.g, ``Loans restructured in troubled debt restructurings that 
are in compliance with their modified terms.'' The portion of 
restructured loans that are guaranteed or insured by the U.S. 
Government are excluded from underperforming assets. This data is 
collected in Call Report Schedule RC-O, Memorandum item 16, ``Portion 
of loans restructured in troubled debt restructurings that are in 
compliance with their modified terms and are guaranteed or insured by 
the U.S. government.''

C. Concentration Measure

    Both the large and highly complex bank scorecards also include a 
concentration measure. The concentration measure is the greater of (1) 
the higher-risk assets to the sum of Tier 1 capital and reserves score 
or (2) the growth-adjusted portfolio concentrations score.\12\ Each 
risk measure, including the higher risk assets ratio and the growth-
adjusted portfolio concentrations ratio, is converted to a score 
between 0 and 100 based upon minimum and maximum cutoff values.\13\ The 
higher-risk assets ratio captures the risk associated with concentrated 
lending in higher-risk areas. Higher-risk assets include construction 
and development (C&D) loans, higher-risk commercial and industrial 
(C&I) loans, higher-risk consumer loans, nontraditional mortgage loans, 
and higher-risk securitizations.\14\
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    \12\ See 12 CFR 327.16(b)(1)(ii)(A)(2)(iii).
    \13\ See 12 CFR part 327, appendix C.
    \14\ Id.
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    Higher-risk C&I loans are defined, in part, based on whether the 
loan is owed to the bank by a higher-risk C&I borrower, which includes, 
among other things, a borrower that obtains a refinance of an existing 
C&I loan, subject to certain conditions. Higher-risk consumer loans are 
defined as all consumer loans where, as of origination, or, if the loan 
has been refinanced, as of refinance, the probability of default within 
two years is greater than 20 percent, excluding those consumer loans 
that meet the definition of a nontraditional mortgage loan. A refinance 
for purposes of higher-risk C&I loans and higher-risk consumer loans is 
defined in the assessment regulations and explicitly does not include 
modifications to a loan that would otherwise meet the definition of a 
refinance, but that results in the classification of a loan as a TDR.

D. FASB's Elimination of Troubled Debt Restructurings

    On March 31, 2022, FASB issued ASU 2022-02.\15\ This update 
eliminated the recognition and measurement guidance for TDRs for all 
entities that have adopted FASB Accounting Standards Update No. 2016-13 
(ASU 2016-13), ``Financial Instruments--Credit Losses (Topic 326): 
Measurement of Credit Losses on Financial Instruments'' and the Current 
Expected Credit Losses (CECL) methodology.\16\ The rationale was that 
ASU 2016-13 requires the measurement and recording of lifetime expected 
credit losses on an asset that is within the scope of ASU 2016-13, and 
as a result, credit losses from TDRs have been captured in the 
allowance for credit losses. Therefore, stakeholders observed and 
asserted that the additional designation of a loan modification as a 
TDR and the related accounting were unnecessarily complex and provided 
less meaningful information than under the incurred loss 
methodology.\17\
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    \15\ FASB Accounting Standards Update No. 2022-02, ``Financial 
Instruments--Credit Losses (Topic 326): Troubled Debt Restructurings 
and Vintage Disclosures,'' available at https://www.fasb.org/Page/ShowPdf?path=ASU+2022-02.pdf.
    \16\ FASB Accounting Standards Update No. 2016-13, ``Financial 
Instruments--Credit Losses (Topic 326): Measurement of Credit Losses 
on Financial Instruments,'' June 2016, available at https://www.fasb.org/Page/ShowPdf?path=ASU+2016-13.pdf.
    \17\ FASB Accounting Standards Update No. 2022-02, at BC19, pp. 
57-58.
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    The update eliminates the recognition of TDRs and, instead, 
introduces new and enhanced financial statement disclosure requirements 
related to certain modifications of receivables made to borrowers 
experiencing financial difficulty, or ``modifications to borrowers 
experiencing financial difficulty.'' Such modifications are limited to 
those that result in principal forgiveness, interest rate reductions, 
other-than-insignificant payment delays, or term extensions in the 
current reporting period. Modifications to borrowers experiencing 
financial difficulty may be different from those previously captured in 
TDR disclosures because an entity no longer would have to determine 
whether the creditor has granted a concession, which is a current 
requirement to determine whether a modification represents a TDR. The 
update requires entities to disclose information about (a) the types of 
modifications provided, disaggregated by modification type, (b) the 
expected financial effect of those modifications, and (c) the 
performance of the loans after modification.
    For entities that have adopted CECL, ASU 2022-02 is effective for 
fiscal years beginning after December 15, 2022.\18\ FASB also permitted 
the early adoption of ASU 2022-02 by any entity that has adopted CECL. 
For regulatory reporting purposes, if an institution chooses to early 
adopt ASU 2022-02 during 2022, Supplemental Instructions to the Call 
Report specify that the institution should implement ASU 2022-02 for 
the same quarter-end report date and report ``modifications to 
borrowers experiencing financial difficulty'' in the current TDR Call 
Report line items.\19\ These line items include Schedule RC-C, Part I, 
Memorandum items 1.a. through 1.g., which are used to identify 
``restructured loans'' for the underperforming asset ratio used in the 
large and highly complex bank scorecards, described above. As a result, 
to date, a large or highly complex institution that has early adopted 
ASU

[[Page 64350]]

2022-02 and is reporting modifications to borrowers experiencing 
financial difficulty in the current TDR Call Report line items is 
assigned a deposit insurance assessment rate that relies, in part, on 
this reporting. The FDIC and other members of the Federal Financial 
Institutions Examination Council (FFIEC) are planning to revise the 
Call Report forms and instructions to replace the current TDR 
terminology with updated language from ASU 2022-02 for the first 
quarter of 2023.
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    \18\ Generally, entities that are U.S. Securities and Exchange 
Commission (SEC) filers, excluding smaller reporting companies as 
defined by the SEC, were required to adopt CECL beginning in January 
2020. Most other entities are required to adopt CECL beginning in 
January 2023.
    \19\ See Financial Institution Letter (FIL) 17-2022, 
Consolidated Reports of Condition and Income for First Quarter 2022. 
See also Supplemental Instructions, March 2022 Call Report 
Materials, First 2022 Call, Number 299, available at https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_FFIEC041_FFIEC051_suppinst_202203.pdf.
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III. Discussion of Comments Received

    On July 27, 2022, the FDIC published in the Federal Register a 
notice of proposed rulemaking, (the proposed rule, or proposal) \20\ 
that would incorporate into the large and highly complex bank 
assessment scorecards the updated accounting standard that eliminates 
the recognition of TDRs and, instead, requires new financial statement 
disclosures on ``modifications to borrowers experiencing financial 
difficulty.'' Specifically, the FDIC proposed to expressly define 
restructured loans in the underperforming assets ratio to include 
``modifications to borrowers experiencing financial difficulty.'' The 
FDIC also proposed to amend the definition of a refinance for the 
purposes of determining whether a loan is a higher-risk C&I loan or a 
higher-risk consumer loan, both elements of the higher-risk assets 
ratio. Under the proposal, a refinance would not include modifications 
to a loan that otherwise would meet the definition of a refinance, but 
that result in the classification of a loan as a modification to 
borrowers experiencing financial difficulty. The proposal would not 
affect the small bank deposit insurance assessment system.
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    \20\ 87 FR 45023 (July 27, 2022).
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    The FDIC issued the proposed rule with a 30-day comment period. The 
FDIC received two comment letters in response to the proposal. 
Commenters included two trade associations that submitted a joint 
comment letter (collectively, the Associations) and an insured 
depository institution. Generally, the commenters expressed support for 
the removal of TDRs from the large and highly complex bank assessment 
scorecards upon adoption of CECL and ASU 2022-02.
    The commenters also asked the FDIC to consider removing TDRs 
without replacement, stating that the new accounting term, 
``modifications to borrowers experiencing financial difficulty,'' is 
not an appropriate replacement for TDRs in the large and highly complex 
bank scorecards. The Associations stated that modifications to 
borrowers experiencing financial difficulty are not a measure of asset 
quality and are not analogous to TDRs.
    With respect to these comments, the FDIC recognizes that while 
modifications to borrowers experiencing financial difficulty and TDRs 
are not identically defined, they both are types of restructured loans 
and are indicators of elevated credit risk. TDRs have been an important 
component of risk-based pricing for large and highly complex banks, as 
they have been shown to be a statistically significant predictor of the 
performance of large institutions during a stress period.\21\ Though 
not identical to TDRs, modifications to borrowers experiencing 
financial difficulty are made to borrowers who are unable to perform 
according to the original contractual terms of their loans. Such 
modification activity typically indicates an elevated level of credit 
risk. While the reporting of TDRs will be eliminated under ASU 2022-02, 
the risk presented by restructured loans remains.
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    \21\ 76 FR at 10688 (Feb. 25, 2011).
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    All commenters supported the removal of TDRs from the large and 
highly complex bank scorecards, and one commenter stated that the 
alternative of requiring large banks to continue to report TDRs solely 
for purposes of calculating deposit insurance assessments would impose 
significant burdens whose costs would not justify the benefits. In the 
absence of TDRs, the FDIC believes that the new accounting term should 
be included in the large bank scorecard's credit quality measure as an 
indicator of elevated credit risk. The alternative suggested by 
commenters, eliminating TDRs entirely from the large bank scorecard and 
not replacing them with modifications to borrowers experiencing 
financial difficulty, would eliminate a significant indicator of credit 
risk. Accounting for this risk is important to meeting the FDIC's 
statutory obligation to assess institutions based on risk, and failure 
to capture this risk in deposit insurance assessments for large and 
highly complex banks could adversely affect the DIF.
    The Associations also wrote that replacing TDRs with modifications 
to borrowers experiencing financial difficulty would result in double-
counting of these loans in the underperforming asset ratio because such 
modifications include both performing and non-performing loans. 
Currently, reporting by early adopters distinguishes between performing 
and non-performing modifications to borrowers experiencing financial 
difficulty, thereby ensuring that such loans will not be double-counted 
in the underperforming assets ratio. The FDIC will monitor future 
updates to the reporting of modifications to borrowers experiencing 
financial difficulty for changes that would result in double-counting 
in the underperforming assets ratio, if any.
    All commenters suggested that including modifications to borrowers 
experiencing financial difficulty in large bank pricing would 
discourage banks from working with their borrowers and would result in 
pro-cyclical assessments. With respect to this concern, the FDIC does 
not believe that its proposal to include modifications to borrowers 
experiencing financial difficulty in the large bank and highly complex 
bank scorecards is inconsistent with guidance that encourages 
institutions to work prudently and constructively with borrowers who 
are unable to meet their contractual payment obligations due to 
financial stress.\22\ Loan modification programs can serve as proactive 
measures that are in the best interests of institutions and their 
borrowers, and can ultimately reduce overall loss exposure. At the same 
time, modifications typically reflect elevated credit risk compared to 
loans that have not been modified and should be included in a credit 
quality measure for risk-based deposit insurance assessments. 
Institutions have an incentive to work prudently and constructively 
with borrowers through loan modification programs to reduce the 
likelihood of the loans not performing and facing both higher losses 
and deposit insurance assessments as a result of reporting increased 
non-performing loans and losses. Lastly, the Federal banking agencies 
emphasize that examiners will exercise judgment in reviewing loan 
modifications. Examiners will not automatically adversely classify such 
loans or criticize institutions for working with borrowers in a safe 
and sound manner.
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    \22\ See, e.g., FDIC Press Release 49-2020, ``Agencies Issue 
Revised Interagency Statement on Loan Modifications by Financial 
Institutions Working with Customers Affected by the Coronavirus,'' 
dated April 7, 2020, available at https://www.fdic.gov/news/press-releases/2020/pr20049.html.
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    All commenters asked the FDIC to consider limiting the data on 
modifications to borrowers experiencing financial difficulty to those 
loan modifications that occurred in the prior 12 months from the 
reporting date of the assessment. The commenters stated that ASU 2022-
02 requires the disclosure of

[[Page 64351]]

certain modifications to borrowers experiencing financial difficulty 
for the current reporting period and then certain performance 
disclosures for modifications to borrowers experiencing financial 
difficulty in the 12 months after the modifications, in contrast with 
TDRs which are reported on a cumulative basis. To allow bankers to 
better understand how loan modifications to borrowers experiencing 
financial difficulty will be reported on the Call Report, and to 
comment on how the proposed changes would affect assessments, the 
Associations requested that the FDIC reopen the comment period for the 
proposal once revisions to the Call Report instructions have been made.
    As discussed above, the FDIC and other members of the FFIEC are 
planning to revise the Call Report forms and instructions to replace 
the current TDR terminology with updated language from ASU 2022-02 for 
the first quarter of 2023. The proposed revisions to the instructions 
would describe how institutions would apply ASU 2022-02 and report 
modifications to borrowers experiencing financial difficulty. 
Institutions will have an opportunity to comment on the joint notice 
and request for comment on the proposed revisions to the Call Report, 
including the aspects of the collections of information, such as burden 
and utility of the information to be collected.
    As commenters noted, and as described below in the Expected Effects 
section, the FDIC will not have the information necessary to fully 
estimate the impact of the final rule even once updated Call Report 
instructions are in place, as the majority of large and highly complex 
banks have not yet adopted ASU 2022-02 and are not reporting data on 
modifications to borrowers experiencing financial difficulty. 
Modifications to borrowers experiencing financial difficulty could be 
higher, lower, or similar to previously reported TDRs, due to a number 
of factors beyond the Call Report instructions.
    Modifications to borrowers experiencing financial difficulty are 
restructured loans and, in the FDIC's view, are an indicator of 
elevated credit risk that should be included in the large bank and 
highly complex bank scorecards. Furthermore, such elevated credit risk 
is not necessarily eliminated within a given time frame, such as a 12 
month period.
    Accounting for such risk is particularly important once 
institutions implement ASU 2022-02 and no longer report TDRs, which for 
most institutions will be March 31, 2023. Therefore, the FDIC intends 
to use the modifications data as defined in the updated Call Report 
instructions once they are finalized. Reopening the comment period 
would delay the effective date of the final rule and the FDIC would not 
be able to account for the risk posed by modifications to borrowers 
experiencing financial difficulty. Once banks begin to report 
modifications to borrowers experiencing financial difficulty, such 
modifications will be the only replacement available to capture the 
risk presented by restructured loans that has previously been captured 
by the reporting of TDRs for large and highly complex bank deposit 
insurance assessments. While commenters stated that modifications to 
borrowers experiencing financial difficulty were not an appropriate 
substitute for TDRs, no commenter offered an alternative that would 
sufficiently capture the risk presented by restructured loans.
    In light of commenters' concerns about how modifications to 
borrowers experiencing financial difficulty will be reported, and given 
that there may be some uncertainty over how the inclusion of 
modifications to borrowers experiencing financial difficulty in lieu of 
TDRs might affect underperforming assets and assessments, the FDIC 
recognizes that it may need to propose an additional data collection 
item or revise the underperforming assets ratio after a reasonable 
period of observation to adequately price for the risk presented by 
such modifications.

IV. The Final Rule

A. Summary

    The FDIC is adopting the proposed rule without change. Under the 
final rule, the FDIC will incorporate into the large and highly complex 
bank assessment scorecards the updated accounting standard that 
eliminates the recognition of TDRs and, instead, requires new financial 
statement disclosures on ``modifications to borrowers experiencing 
financial difficulty.'' The FDIC also will expressly define 
restructured loans in the underperforming assets ratio to include 
``modifications to borrowers experiencing financial difficulty.'' 
Lastly, the FDIC will amend the definition of a refinance for the 
purposes of determining whether a loan is a higher-risk C&I loan or a 
higher-risk consumer loan, both elements of the higher-risk assets 
ratio. Under the final rule, a refinance would not include 
modifications to a loan that otherwise would meet the definition of a 
refinance, but that result in the classification of a loan as a 
modification to borrowers experiencing financial difficulty. The final 
rule does not affect the small bank deposit insurance assessment 
system.

B. Underperforming Assets Ratio

    The FDIC is amending the underperforming assets ratio used in the 
large and highly complex bank pricing scorecards to conform to the 
updated accounting standards in ASU 2022-02. The amended text will 
explicitly define restructured loans to include modifications to 
borrowers experiencing financial difficulty, which the FDIC will use to 
calculate assessments for large and highly complex banks that have 
adopted CECL and ASU 2022-02, and TDRs, which the FDIC will continue to 
use for the remaining large and highly complex banks.

C. Higher-Risk Assets Ratio

    The FDIC is amending the definition of a refinance, in determining 
whether a loan is a higher-risk C&I loan or a higher-risk consumer loan 
for deposit insurance assessment purposes, to conform to the updated 
accounting standards in ASU 2022-02. Specifically, a refinance of a C&I 
loan will not include a modification or series of modifications to a 
commercial loan that would otherwise meet the definition of a 
refinance, but that result in the classification of a loan as a 
modification to borrowers experiencing financial difficulty, for a 
large or highly complex bank that has adopted CECL and ASU 2022-02, or 
that result in the classification of a loan as a TDR, for all remaining 
large and highly complex banks. For purposes of higher-risk consumer 
loans, a refinance will not include modifications to a loan that would 
otherwise meet the definition of a refinance, but that result in the 
classification of a loan as a modification to borrowers experiencing 
financial difficulty, for a large or highly complex bank that has 
adopted CECL and ASU 2022-02, or that result in the classification of a 
loan as a TDR, for all remaining large and highly complex banks.

V. Expected Effects

    As of June 30, 2022, the FDIC insured 144 banks that were 
classified as large or highly complex for deposit insurance assessment 
purposes, and that will be affected by the final rule.\23\ The FDIC 
expects most of these institutions will adopt CECL by January 1, 2023, 
the effective date of the rule. Absent the final rule, the FDIC would 
not be able to price for modifications to borrowers experiencing 
financial difficulty, which

[[Page 64352]]

are restructured loans and a meaningful indicator of credit risk, once 
most institutions adopt ASU 2022-02 and updates to the Call Report have 
been implemented as of March 31, 2023. Failure to capture this risk in 
deposit insurance assessments for large and highly complex banks could 
adversely affect the DIF.
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    \23\ FDIC Call Report data June 30, 2022.
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    The primary expected effect of the final rule is the change in 
underperforming assets, and the consequent change in assessment rates, 
that will occur as a result of the difference between the amount of 
TDRs that most banks are currently reporting and the amount of 
modifications to borrowers experiencing financial difficulty that banks 
will report upon adoption of ASU 2022-02. The effect of this final rule 
on assessments paid by large and highly complex banks is difficult to 
estimate since most banks have not yet implemented ASU 2022-02 and are 
not reporting modifications to borrowers experiencing financial 
difficulty, and the FDIC does not know how the amount of reported 
modifications to borrowers experiencing financial difficulty will 
compare to the amount of TDRs that affected banks report over time.
    In general, the FDIC continues to expect that the initial amount of 
modifications made to borrowers experiencing financial difficulty will 
be lower than previously reported TDRs. This is because under ASU 2022-
02, reporting of modifications to borrowers experiencing financial 
difficulty should be applied prospectively and would therefore apply 
only to modifications made after a bank adopts the standard. However, 
in the long term it is possible that the amount of modifications to 
borrowers experiencing financial difficulty could be higher or lower 
than the amount of TDRs that banks would have reported prior to 
adoption of ASU 2022-02. Therefore, under the final rule, the 
underperforming assets ratio could be higher or lower due to the 
adoption of ASU 2022-02, and the resulting ratio may or may not affect 
an individual bank's assessment rate, depending on whether it is the 
binding ratio for the credit quality measure.
    The FDIC does not have the information necessary to estimate the 
expected effects of the final rule to incorporate the new accounting 
standard into the large and highly complex bank scorecards. Analysis 
detailed in the notice of proposed rulemaking illustrates a range of 
potential outcomes based on TDRs reported as of December 31, 2021, the 
last quarter before FASB issued ASU 2022-02. The analysis is unchanged 
because some large banks may have early adopted ASU 2022-02 during 
2022, so December 31, 2021, is still the last quarter all banks were 
required to report TDRs.
    The FDIC calculated some illustrative examples of the effect on 
assessments if modifications made to borrowers experiencing financial 
difficulty are lower than certain amounts of previously reported TDRs. 
For example, if all large and highly complex banks had reported zero 
TDRs as of December 31, 2021, before FASB issued ASU 2022-02, the 
impact on the underperforming assets ratio would have reduced total 
deposit insurance assessment revenue by an annualized amount of 
approximately $90 million; if modifications were 50 percent lower than 
TDRs reported as of December 31, 2021, annualized assessments would 
have decreased by $52 million.
    Alternatively, as an extreme and unlikely scenario, if all large 
and highly complex banks had reported zero TDRs during a period when 
overall risk in the banking industry was higher, such as December 31, 
2011, the resulting underperforming assets ratio would have reduced 
total deposit insurance assessment revenue by an annualized amount of 
approximately $957 million. Between 2015 and 2019, if TDRs were zero, 
the resulting underperforming assets ratio would have reduced total 
deposit insurance assessment revenue by about $279 million annually, on 
average.
    Over time, however, large and highly complex banks will implement 
ASU 2022-02 and begin to report modifications to borrowers experiencing 
financial difficulties. As noted above, the effect on assessments will 
depend on how the newly reported modifications compare to the TDRs that 
would have been reported under the prior accounting standard. For 
example, if all large and highly complex banks had reported 
modifications to borrowers experiencing financial difficulty that were 
25 percent greater than the TDRs reported as of December 31, 2021, the 
impact on the underperforming assets ratio would have increased total 
deposit insurance assessment revenue by an annualized amount of 
approximately $30 million; if the modifications exceeded TDRs by 50 
percent, annualized assessments would have increased by $65 million; 
and if the modifications exceeded TDRs by 100 percent, annualized 
assessments would have increased by $137 million.
    The analysis presented above serves as an illustrative example of 
potential effects of the final rule. The analysis does not estimate 
potential future modifications to borrowers experiencing financial 
difficulty or how those amounts, once reported, will compare to 
previously reported TDRs for a few reasons. First, banks were granted 
temporary relief from reporting TDRs that were modified due to the 
COVID-19 pandemic, so recent reporting of TDRs is likely lower than it 
may otherwise have been.\24\ Second, the amount of modifications or 
restructurings made by large or highly complex banks vary based on 
economic conditions and future economic conditions are uncertain. 
Third, as commenters noted, a restructuring of a debt constitutes a TDR 
if the creditor for economic or legal reasons related to the debtor's 
financial difficulties grants a concession to the debtor that it would 
not otherwise consider, while a modification to borrowers experiencing 
financial difficulty is not evaluated based on whether or not a 
concession has been granted. Finally, future Call Report revisions and 
instructions on how modifications to borrowers experiencing financial 
difficulties are required to be reported will affect the future 
reported amount of modifications to borrowers experiencing financial 
difficulty.
---------------------------------------------------------------------------

    \24\ On March 27, 2020, the Coronavirus Aid, Relief, and 
Economic Security Act (CARES Act) was signed into law. Section 4013 
of the CARES Act, ``Temporary Relief From Troubled Debt 
Restructurings,'' provided banks the option to temporarily suspend 
certain requirements under U.S. GAAP related to TDRs to account for 
the effects of COVID-19. Division N of the Consolidated 
Appropriations Act, 2021 (Title V, subtitle C, section 541) was 
signed into law on December 27, 2020, extending the provisions in 
Section 4013 of the CARES Act to January 1, 2022. This relief 
applied to certain loans modified between March 1, 2020 and January 
1, 2022.
---------------------------------------------------------------------------

    With regard to the higher-risk assets ratio, the effect on 
assessments paid by large and highly complex banks is likely to be more 
muted. The assessment regulations define a higher-risk C&I or consumer 
loan as a loan or refinance that meets certain risk criteria. The final 
rule will exclude modifications to borrowers experiencing financial 
difficulty from the definition of a refinance for purposes of the 
higher-risk assets ratio. As a result, if a modification to a C&I or 
consumer loan results in the classification of the loan as a TDR, under 
the current regulations, or as a modification to borrowers experiencing 
financial difficulty, under the final rule, a large or highly complex 
bank will not have to re-evaluate whether the modified loan meets the 
definition of a higher-risk asset.
    For example, if a higher-risk C&I loan was subsequently modified as 
a TDR or modification to borrowers experiencing

[[Page 64353]]

financial difficulty, it will not be considered a refinance and, 
therefore, will continue to be considered a higher-risk asset. 
Conversely, if a C&I loan that does not meet the definition of a 
higher-risk asset was subsequently modified as a TDR or modification to 
borrowers experiencing financial difficulty, it will not be considered 
a refinance and, therefore, will not have to be re-evaluated to 
determine if it meets the definition of a higher-risk asset. The FDIC 
assumes that these possible outcomes are generally offsetting and this 
aspect of the final rule will have minimal to no effect on deposit 
insurance assessments for large and highly complex banks.

VI. Alternatives Considered

    The FDIC considered two reasonable and possible alternatives as 
described below. On balance, the FDIC believes the final rule will 
determine deposit insurance assessment rates for large and highly 
complex banks in the most appropriate, accurate, and straightforward 
manner.
    One alternative would be to require banks to continue to report 
TDRs specifically for deposit insurance assessment purposes, even after 
they have adopted CECL and ASU 2022-02. This alternative would maintain 
consistency of the data used in the underperforming assets ratio and 
higher-risk assets ratio with prior reporting periods. However, and as 
one commenter noted, this alternative would impose additional reporting 
burden on large and highly complex banks. This alternative would also 
fail to recognize the potential usefulness of the new data on 
modifications to borrowers experiencing financial difficulty. 
Ultimately, the FDIC does not believe any benefits from continued 
reporting of TDRs expressly for assessment purposes would justify the 
cost to affected banks.
    The FDIC also considered a second alternative: removing 
restructured loans from the definition of underperforming assets 
entirely and not incorporating the new data on modifications to 
borrowers experiencing financial difficulty. Similar to the first 
alternative, this second alternative would apply uniformly to all large 
and highly complex banks, regardless of their early adoption status. 
Both commenters supported this alternative. However, this alternative 
fails to recognize that modifications to borrowers experiencing 
financial difficulty are restructured loans and are a meaningful 
indicator of credit risk throughout economic cycles that should be 
included in credit quality measures such as the underperforming assets 
ratio and the higher-risk assets ratio. Failure to capture this risk in 
deposit insurance assessments for large and highly complex banks could 
adversely affect the DIF.
    The FDIC believes that the new modifications data required under 
ASU 2022-02 will provide valuable information and would not impose 
additional reporting burden. Incorporating this new data in place of 
TDRs would be the most reasonable option to ensure that large and 
highly complex banks are assessed fairly and accurately.

VII. Effective Date and Application Date

    The FDIC is issuing this final rule with an effective date of 
January 1, 2023, and applicable to the first quarterly assessment 
period of 2023 (i.e., January 1 through March 31, 2023, with an invoice 
payment date of June 30, 2023). Most institutions that have implemented 
CECL, will adopt FASB's ASU 2022-02 in 2023, unless an institution 
chooses to early adopt in 2022. Institutions (those with a calendar 
year fiscal year) implementing CECL on January 1, 2023, will also 
adopt, FASB's ASU 2022-02 at that time. Therefore, by the first quarter 
of 2023, ASU 2022-02 also will be in effect for most, if not all, large 
and highly complex banks. The FDIC believes that coordinating the 
assessment system amendments to conform to the new accounting standards 
will promote a more efficient transition and will result in affected 
banks reporting their data in a consistent manner based on the correct 
accounting concepts.

VIII. Administrative Law Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires an agency, 
in connection with a final rule, to prepare and make available for 
public comment a final regulatory flexibility analysis that describes 
the impact of a final rule on small entities.\25\ However, a regulatory 
flexibility analysis is not required if the agency certifies that the 
final rule will not have a significant economic impact on a substantial 
number of small entities. The U.S. Small Business Administration (SBA) 
has defined ``small entities'' to include banking organizations with 
total assets of less than or equal to $750 million.\26\ Certain types 
of rules, such as rules relating to rates, corporate or financial 
structures, or practices relating to such rates or structures, are 
expressly excluded from the definition of ``rule'' for purposes of the 
RFA.\27\ Because the final rule relates directly to the rates imposed 
on IDIs for deposit insurance and to the deposit insurance assessment 
system that measures risk and determines each bank's assessment rate, 
the final rule is not subject to the RFA. Nonetheless, the FDIC is 
voluntarily presenting information in this RFA section.
---------------------------------------------------------------------------

    \25\ 5 U.S.C. 601 et seq.
    \26\ The SBA defines a small banking organization as having $750 
million or less in assets, where an organization's ``assets are 
determined by averaging the assets reported on its four quarterly 
financial statements for the preceding year.'' See 13 CFR 121.201 
(as amended by 87 FR 18627, effective May 2, 2022). In its 
determination, the SBA counts the receipts, employees, or other 
measure of size of the concern whose size is at issue and all of its 
domestic and foreign affiliates. See 13 CFR 121.103. Following these 
regulations, the FDIC uses a covered entity's affiliated and 
acquired assets, averaged over the preceding four quarters, to 
determine whether the covered entity is ``small'' for the purposes 
of RFA.
    \27\ 5 U.S.C. 601.
---------------------------------------------------------------------------

    Based on Call Report data as of June 30, 2022, the FDIC insures 
4,780 IDIs, of which 3,394 are defined as small entities by the terms 
of the RFA.\28\ The final rule, however, will apply only to 
institutions with $10 billion or greater in total assets which, by 
definition, do not meet the criteria to be considered small entities 
for the purposes of the RFA. Therefore, no small entities will be 
affected by the final rule.
---------------------------------------------------------------------------

    \28\ FDIC Call Report data, June 30, 2022.
---------------------------------------------------------------------------

B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) states that no agency may 
conduct or sponsor, nor is the respondent required to respond to, an 
information collection unless it displays a currently valid Office of 
Management and Budget (OMB) control number.\29\ The FDIC's OMB control 
numbers for its assessment regulations are 3064-0057, 3064-0151, and 
3064-0179. The final rule does not create any new, or revise any of 
these existing assessment information collections pursuant to the PRA 
and consequently, no submissions in connection with these OMB control 
numbers will be made to the OMB for review. However, the final rule 
affects the agencies' current information collections for the Call 
Report (FFIEC 031 and FFIEC 041, but not FFIEC 051). The agencies' OMB 
control numbers for the Call Reports are: OCC OMB No. 1557-0081; Board 
OMB No. 7100-0036; and FDIC OMB No. 3064-0052. The changes to the Call 
Report forms and instructions will be addressed in a separate Federal 
Register notice.
---------------------------------------------------------------------------

    \29\ 44 U.S.C. 3501-3521.

---------------------------------------------------------------------------

[[Page 64354]]

C. Riegle Community Development and Regulatory Improvement Act

    Section 302(a) of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (RCDRIA) requires that the Federal banking 
agencies, including the FDIC, in determining the effective date and 
administrative compliance requirements of new regulations that impose 
additional reporting, disclosure, or other requirements on IDIs, 
consider, consistent with principles of safety and soundness and the 
public interest, any administrative burdens that such regulations would 
place on depository institutions, including small depository 
institutions, and customers of depository institutions, as well as the 
benefits of such regulations.\30\ In addition, section 302(b) of RCDRIA 
requires new regulations and amendments to regulations that impose 
additional reporting, disclosures, or other new requirements on IDIs 
generally to take effect on the first day of a calendar quarter that 
begins on or after the date on which the regulations are published in 
final form, with certain exceptions, including for good cause.\31\
---------------------------------------------------------------------------

    \30\ 12 U.S.C. 4802(a).
    \31\ 12 U.S.C. 4802(b).
---------------------------------------------------------------------------

    The final rule will not impose additional reporting, disclosure, or 
other new requirements on insured depository institutions, including 
small depository institutions, or on the customers of depository 
institutions. Accordingly, section 302 of RCDRIA does not apply. The 
FDIC invited comments regarding the application of RCDRIA in the 
proposed rule, but did not receive comments on this topic. 
Nevertheless, the requirements of RCDRIA have been considered in 
setting the final effective date.

D. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \32\ requires the Federal 
banking agencies to use plain language in all proposed and final 
rulemakings published in the Federal Register after January 1, 2000. 
The FDIC invited comment regarding the use of plain language in the 
proposed rule but did not receive any comments on this topic.
---------------------------------------------------------------------------

    \32\ Public Law 106-102, section 722, 113 Stat. 1338, 1471 
(1999), 12 U.S.C. 4809.
---------------------------------------------------------------------------

E. The Congressional Review Act

    For purposes of the Congressional Review Act, the OMB makes a 
determination as to whether a final rule constitutes a ``major'' 
rule.\33\ If a rule is deemed a ``major rule'' by the OMB, the 
Congressional Review Act generally provides that the rule may not take 
effect until at least 60 days following its publication.\34\
---------------------------------------------------------------------------

    \33\ 5 U.S.C. 801 et seq.
    \34\ 5 U.S.C. 801(a)(3).
---------------------------------------------------------------------------

    The Congressional Review Act defines a ``major rule'' as any rule 
that the Administrator of the Office of Information and Regulatory 
Affairs of the OMB finds has resulted in or is likely to result in--(A) 
an annual effect on the economy of $100,000,000 or more; (B) a major 
increase in costs or prices for consumers, individual industries, 
Federal, State, or Local government agencies or geographic regions; or 
(C) significant adverse effects on competition, employment, investment, 
productivity, innovation, or on the ability of United States-based 
enterprises to compete with foreign-based enterprises in domestic and 
export markets.\35\
---------------------------------------------------------------------------

    \35\ 5 U.S.C. 804(2).
---------------------------------------------------------------------------

    The OMB has determined that the final rule is a major rule for 
purposes of the Congressional Review Act. As required by the 
Congressional Review Act, the FDIC will submit the final rule and other 
appropriate reports to Congress and the Government Accountability 
Office for review.

List of Subjects in 12 CFR Part 327

    Bank deposit insurance, Banks, Banking, Savings associations.

Authority and Issuance

    For the reasons stated in the preamble, the Federal Deposit 
Insurance Corporation amends 12 CFR part 327 as follows:

PART 327--ASSESSMENTS

0
1. The authority for 12 CFR part 327 continues to read as follows:

    Authority:  12 U.S.C. 1813, 1815, 1817-19, 1821.


0
2. Amend appendix A to subpart A in section IV by:
0
a. In the entries for ``Balance Sheet Liquidity Ratio,'' ``Potential 
Losses/Total Domestic Deposits (Loss Severity Measure),'' and ``Market 
Risk Measure for Highly Complex Institutions,'' redesignating footnotes 
5, 6, and 7 as footnotes 6, 7, and 8, respectively;
0
b. Redesignating footnotes 5, 6, and 7 as footnotes 6, 7, and 8 at the 
end of the table;
0
c. Revising the entry for ``Credit Quality Measure''; and
0
d. Adding new footnote 5 at the end of the table.
    The revision and addition read as follows:

Appendix A to Subpart A of Part 327--Method To Derive Pricing 
Multipliers and Uniform Amount

* * * * *

IV. Description of Scorecard Measures

------------------------------------------------------------------------
    Scorecard measures \1\                    Description
------------------------------------------------------------------------
 
                              * * * * * * *
Credit Quality Measure.......  The credit quality score is the higher of
                                the following two scores:
(1) Criticized and Classified  Sum of criticized and classified items
 Items/Tier 1 Capital and       divided by the sum of Tier 1 capital and
 Reserves \2\.                  reserves. Criticized and classified
                                items include items an institution or
                                its primary Federal regulator have
                                graded ``Special Mention'' or worse and
                                include retail items under Uniform
                                Retail Classification Guidelines,
                                securities, funded and unfunded loans,
                                other real estate owned (ORE), other
                                assets, and marked-to-market
                                counterparty positions, less credit
                                valuation adjustments.\4\ Criticized and
                                classified items exclude loans and
                                securities in trading books, and the
                                amount recoverable from the U.S.
                                Government, its agencies, or Government-
                                sponsored enterprises, under guarantee
                                or insurance provisions.
(2) Underperforming Assets/    Sum of loans that are 30 days or more
 Tier 1 Capital and Reserves    past due and still accruing interest,
 \2\.                           nonaccrual loans, restructured loans \5\
                                (including restructured 1-4 family
                                loans), and ORE, excluding the maximum
                                amount recoverable from the U.S.
                                Government, its agencies, or government-
                                sponsored enterprises, under guarantee
                                or insurance provisions, divided by a
                                sum of Tier 1 capital and reserves.
 

[[Page 64355]]

 
                              * * * * * * *
------------------------------------------------------------------------
\1\ The FDIC retains the flexibility, as part of the risk-based
  assessment system, without the necessity of additional notice-and-
  comment rulemaking, to update the minimum and maximum cutoff values
  for all measures used in the scorecard. The FDIC may update the
  minimum and maximum cutoff values for the higher-risk assets to Tier 1
  capital and reserves ratio in order to maintain an approximately
  similar distribution of higher-risk assets to Tier 1 capital and
  reserves ratio scores as reported prior to April 1, 2013, or to avoid
  changing the overall amount of assessment revenue collected. 76 FR
  10672, 10700 (February 25, 2011). The FDIC will review changes in the
  distribution of the higher-risk assets to Tier 1 capital and reserves
  ratio scores and the resulting effect on total assessments and risk
  differentiation between banks when determining changes to the cutoffs.
  The FDIC may update the cutoff values for the higher-risk assets to
  Tier 1 capital and reserves ratio more frequently than annually. The
  FDIC will provide banks with a minimum one quarter advance notice of
  changes in the cutoff values for the higher-risk assets to Tier 1
  capital and reserves ratio with their quarterly deposit insurance
  invoice.
\2\ 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.
 * * * * * * *
\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\ Restructured loans include troubled debt restructurings and
  modifications to borrowers experiencing financial difficulty, as these
  terms are defined in the glossary to the Call Report, as they may be
  amended from time to time.

* * * * *

0
3. Amend appendix C to subpart A by:
0
a. In section I.A.2., under the heading ``Definitions,'' revising the 
entry for ``Refinance''; and
0
b. In section I.A.3., revising the ``Refinance'' section preceding 
section I.A.4.
    The revisions read as follows:

Appendix C to Subpart A of Part 327--Description of Concentration 
Measures

    I. * * *
    A. * * *
    2. * * *

Definitions

* * * * *

Refinance

    For purposes of a C&I loan, a refinance includes:
    (a) Replacing an original obligation by a new or modified 
obligation or loan agreement;
    (b) Increasing the master commitment of the line of credit (but 
not adjusting sub-limits under the master commitment);
    (c) Disbursing additional money other than amounts already 
committed to the borrower;
    (d) Extending the legal maturity date;
    (e) Rescheduling principal or interest payments to create or 
increase a balloon payment;
    (f) Releasing a substantial amount of collateral;
    (g) Consolidating multiple existing obligations; or
    (h) Increasing or decreasing the interest rate.
    A refinance of a C&I loan does not include a modification or 
series of modifications to a commercial loan other than as described 
above or modifications to a commercial loan that would otherwise 
meet this definition of refinance, but that result in the 
classification of a loan as a troubled debt restructuring (TDR) or a 
modification to borrowers experiencing financial difficulty, as 
these terms are defined in the glossary of the Call Report 
instructions, as they may be amended from time to time.
* * * * *
    3. * * *

Refinance

    For purposes of higher-risk consumer loans, a refinance 
includes:
    (a) Extending new credit or additional funds on an existing 
loan;
    (b) Replacing an existing loan with a new or modified 
obligation;
    (c) Consolidating multiple existing obligations;
    (d) Disbursing additional funds to the borrower. Additional 
funds include a material disbursement of additional funds or, with 
respect to a line of credit, a material increase in the amount of 
the line of credit, but not a disbursement, draw, or the writing of 
convenience checks within the original limits of the line of credit. 
A material increase in the amount of a line of credit is defined as 
a 10 percent or greater increase in the quarter-end line of credit 
limit; however, a temporary increase in a credit card line of credit 
is not a material increase;
    (e) Increasing or decreasing the interest rate (except as noted 
herein for credit card loans); or
    (f) Rescheduling principal or interest payments to create or 
increase a balloon payment or extend the legal maturity date of the 
loan by more than six months.
    A refinance for this purpose does not include:
    (a) A re-aging, defined as returning a delinquent, open-end 
account to current status without collecting the total amount of 
principal, interest, and fees that are contractually due, provided:
    (i) The re-aging is part of a program that, at a minimum, 
adheres to the re-aging guidelines recommended in the interagency 
approved Uniform Retail Credit Classification and Account Management 
Policy; \[12]\
    (ii) The program has clearly defined policy guidelines and 
parameters for re-aging, as well as internal methods of ensuring the 
reasonableness of those guidelines and monitoring their 
effectiveness; and
    (iii) The bank monitors both the number and dollar amount of re-
aged accounts, collects and analyzes data to assess the performance 
of re-aged accounts, and determines the effect of re-aging practices 
on past due ratios;
    (b) Modifications to a loan that would otherwise meet this 
definition of refinance, but result in the classification of a loan 
as a TDR or modification to borrowers experiencing financial 
difficulty;
    (c) Any modification made to a consumer loan pursuant to a 
government program, such as the Home Affordable Modification Program 
or the Home Affordable Refinance Program;
    (d) Deferrals under the Servicemembers Civil Relief Act;
    (e) A contractual deferral of payments or change in interest 
rate that is consistent with the terms of the original loan 
agreement (e.g., as allowed in some student loans);
    (f) Except as provided above, a modification or series of 
modifications to a closed-end consumer loan;
    (g) An advance of funds, an increase in the line of credit, or a 
change in the interest rate that is consistent with the terms of the 
loan agreement for an open-end or revolving line of credit (e.g., 
credit cards or home equity lines of credit);
    (h) For credit card loans:
    (i) Replacing an existing card because the original is expiring, 
for security reasons, or because of a new technology or a new 
system;
    (ii) Reissuing a credit card that has been temporarily suspended 
(as opposed to closed);
    (iii) Temporarily increasing the line of credit;
    (iv) Providing access to additional credit when a bank has 
internally approved a higher credit line than it has made available 
to the customer; or
    (v) Changing the interest rate of a credit card line when 
mandated by law (such as in the case of the Credit CARD Act).
* * * * *
    \[12]\ Among other things, for a loan to be considered for re-
aging, the following must

[[Page 64356]]

be true: (1) The borrower must have demonstrated a renewed 
willingness and ability to repay the loan; (2) the loan must have 
existed for at least nine months; and (3) the borrower must have 
made at least three consecutive minimum monthly payments or the 
equivalent cumulative amount.
* * * * *

Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, on October 18, 2022.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2022-22986 Filed 10-20-22; 11:15 am]
BILLING CODE 6714-01-P