Comments due Aug. 26 on FDIC-proposed ratio modifications addressing TDR accounting changes

Comments on a proposal to include modifications to borrowers experiencing financial difficulty – formerly called troubled debt restructurings (TDRs) by the accounting industry – in the underperforming assets ratio and higher-risk assets ratio for purposes of deposit insurance assessments are due Aug. 26 to the federal bank deposit insurance agency.

The proposed rule, issued by the Federal Deposit Insurance Corp. (FDIC) during its July 21 board meeting, is expected to finalized and put into effect by Jan. 1, 2023, and applicable to the first quarterly assessment period of the year, the agency said.

The FDIC said its aim is to ensure that the risk-based deposit insurance assessment system applicable to large and highly complex banks conforms to recently updated accounting standards. The Financial Accounting Standards Board (FASB) in March issued Accounting Standards Update No. 2022-02 (ASU 2022-02), “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” This ASU update eliminates the recognition and measurement guidance of TDRs and, the FDIC noted, introduces 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.”

Risk-based deposit insurance assessments for large and highly complex banks are determined, in part, using TDRs. Therefore, to incorporate the updated accounting standards, the proposed amendment would include modifications to borrowers experiencing financial difficulty in the description of the underperforming assets ratio, which includes restructured loans, and definitions used in the higher-risk assets ratio, which reference TDRs. The agency said both ratios are used to determine risk-based deposit insurance assessments for large and highly complex banks.

The agency said its proposal would not affect the small bank deposit insurance assessment system.

Reg lookup: Assessments, Amendments To Incorporate Troubled Debt Restructuring Accounting Standards Update