Booklet reflects revisions for credit concentration ratios to comply with CECL accounting

Changes to the supervisory calculation for credit concentration ratios for banks that have implemented new current expected credit loss (CECL) accounting rules are included in the latest version of the Comptroller’s Handbook released Monday by the national bank regulator.

The Office of the Comptroller of the Currency (OCC) said its revised “Concentrations of Credit” booklet made the changes to the credit concentration ratios for CECL transition rules to avoid double counting the allowance for credit losses in the denominator.

The booklet is prepared, the OCC said, for use by its examiners in connection with the examination and supervision of national banks, federal savings associations, and other federal branches and agencies of foreign banking organizations.

Regarding the credit concentrations, the OCC said they are calculated as a percentage, using tier 1 capital plus either the allowance for loan and leases losses or the allowance for credit losses (ACL), as appropriate, as the denominator.

“For banks that have adopted the 2019 or 2020 CECL capital transition rule (refer to 12 CFR 3.301), a portion of the ACL may be included as a component of tier 1 capital for the years that the bank reported its regulatory capital ratios using the allowable capital relief provided by those rules.”

The agency said that in order to eliminate potential double counting of the ACL in the denominator for purposes of measuring concentrations, the amount of the ACL included as a component of tier 1 capital during the period when a bank reported regulatory capital ratios using the 2019 or 2020 CECL capital transition rule should be subtracted from tier 1 capital.

The amount to be subtracted from tier 1 capital, the OCC said, is calculated as the difference between retained earnings on Schedule RC “Balance Sheet” (line 26a) and retained earnings on Schedule RC-R, part 1, “Regulatory Capital Components and Ratios” (line 2) of the Consolidated Reports of Condition and Income.

Additional revisions included in the booklet, the OCC said, included:

  • Replacement of the term “criticized” with “special mention” for consistency with Banking Bulletin (BB) 1993-35, “Interagency Definition of Special Mention Assets.”
  • Reflection of relevant OCC issuances published since this booklet was last issued.

OCC Bulletin 2020-90 – Concentrations of Credit: Revised Comptroller’s Handbook Booklet and Rescissions