FDIC Approves Proposed Rule to Amend Large Bank Pricing Assessment System

FDIC

On March 20, the FDIC approved for publication a proposed rule to amend the large bank pricing assessment system to include revised definitions of nontraditional mortgage loans, subprime consumer loans, and leveraged commercial loans. A February 2011 FDIC rule, among other things, eliminated risk categories and the use of long-term debt issuer ratings and instead adopted scorecards that combine CAMELS ratings and certain forward-looking measures to assess risk posed by an institution to the FDIC insurance fund. One of the financial ratios used in the scorecards involves higher-risk assets, defined as the sum of construction and land development loans, leveraged loans, subprime loans, and nontraditional mortgage loans. The February rule used existing interagency guidance to define nontraditional mortgage loans, subprime consumer loans, and leveraged commercial loans, but refined the definitions to minimize reporting discrepancies. A subsequent FDIC notice added a requirement that covered institutions include nontraditional mortgage loans, subprime consumer loans, and leveraged commercial loans data in their Call Reports. However, institutions generally do not maintain data on those loans consistent with the definitions in the February rule, and therefore were not able comply with the reporting requirements. The proposed rule extensively revises these definitions to allow large banks to report the information needed to conduct the assessments.