FDIC Eases Reporting Standards in Assessment Plan

WASHINGTON — The Federal Deposit Insurance Corp. sought Tuesday to relieve some of the reporting burdens tied to its new assessment plan, but one regulator worries the plan is still too complex.

Last year the agency broadened its pricing formula for large banks to make deposit insurance premiums more sensitive to the risks institutions take. Among several factors, the agency required institutions with over $10 billion of assets to report amounts of "leveraged" business and "subprime" consumer loans, which are combined with other indicators to calculate a bank's price.

But bankers argued those two mandates were inconsistent with normal reporting standards and the data that banks keep.

The FDIC is attempting to resolve banks' concerns by revising the definitions for an institution's higher-risk assets to correspond with readily accessible data.

"It was a constructive engagement with the industry trying to find a means that they could comply with what we were trying to achieve, while we were able to maintain the risk sensitivity we were seeking in our assessments standards," said Martin Gruenberg, the agency's acting chairman.

Under the proposal made Tuesday, the category of "leveraged" commercial and industrial loans would be renamed "higher-risk C&I loans and securities."

The new designation would include commercial loans of $5 million or more if that debt — incurred within a seven-year period — was material to financing a leveraged deal or capital distribution. The classification also would apply if a syndication agent simply deemed the borrower to be engaged in a "highly leveraged" deal.

Banks would report securitizations in which most of the underlying commercial loans met such criteria, as well as their exposure to corporate securities that had similar characteristics.

Meanwhile, "subprime consumer loans" would switch to "higher-risk consumer loans and securities."

The classification would include consumer loans or refinancings — excluding nontraditional mortgages — with a 20% probability of default, or securitizations in which over half of the pool is backed by such loans.

Bankers will get 60 days to comment.

Banks would pay about the same in premiums as under the initial plan, the FDIC said.

"This is an improvement … to reduce burden consistent with trying to identify risky classes of loans and loan portfolios and to price assessments according to risk," said the acting comptroller of the currency, John Walsh, who sits on the FDIC board. Yet he reiterated his concerns that the FDIC's pricing model could be too complex.

"I look forward to comments on whether it captures risk in a manner that is consistent with prevailing industry practice," Walsh said.

At its meeting Tuesday, the FDIC board also proposed how the agency would treat certain contracts at a global company should the government seize the firm under its new resolution powers. That proposal, which also has a 60-day comment period, would clarify when the FDIC — authorized under the Dodd-Frank Act to seize failing firms considered systemically important — may honor contracts held by a firm's affiliates or subsidiaries.

Such contracts can include clauses terminating them when a parent company becomes insolvent, but Dodd-Frank gave the FDIC power to continue to enforce such deals to maximize a firm's receivership value.

"This authority is critical to the preservation of going-concern value of a covered financial company that is part of a large, interconnected corporate structure," the agency said.