WASHINGTON — Months after the Federal Deposit Insurance Corp. revamped its large-bank assessment system, banks are urging the agency to revisit new reporting requirements stemming from the plan.
In call report data due June 30, institutions with more than $10 billion of assets must report both subprime consumer loans and loans to highly leveraged commercial borrowers, which will be used with many other factors to create a risk-sensitive price.
But in comment letters and a meeting earlier this month with agency officials, banks have grumbled that the FDIC's definition for the two factors is more rigid than under prior guidance, and the accuracy of the new information under the time constraints may not be guaranteed. They want adjustments to the reporting demands or more time to comply.
"What may at first review appear to be a subtle textual change to certain definitions used for call reporting purposes is in fact a change of rather broad proportion," David W. Phillippi, deputy controller at Bank of New York Mellon Corp., wrote in a May 16 letter.
While it is unclear how the agency will address the issue, time is of the essence. Bankers say implementing the changes is a massive demand on resources, and they cannot ensure the data's accuracy under the FDIC's definitions by the June deadline.
"It's a very big problem that needs a resolution within days, not weeks," James Chessen, the American Bankers Association's chief economist, said in an interview.
"The bottom line is this is an enormous burden."
Yet even though the industry may be hard-pressed to report the information, the FDIC is also in a bind to change the requirements at this stage, in part because that could affect the application of the broader premium rule. The first round of the new pricing is based on second-quarter call report information, and invoices will be due in September.
Commenters had touched on the definition issue after the agency proposed the changes in November, but the FDIC was not made aware of the extent of the industry's concerns until just this month.
"Now that these issues have been brought to our attention we are looking at possible solutions that could address the concerns while still achieving the goals of the large-bank pricing rule," said Arthur Murton, the head of the FDIC division of insurance and research.
The assessment rule, finalized in February, was part of the agency's continuing effort to make a bank's price reflect the risks it was taking before they actually affected its performance.
Though a bank already must provide figures detailing subprime consumer and highly leveraged commercial loans to its primary regulators as part of the exam process, the regulators in March proposed putting those two loan types into formal call report data. Banks had until May 16 to comment on the change.
But whereas a 2001 interagency guidance, and 2008 examination policy from the Office of the Comptroller of the Currency, gives banks flexibility in how they define subprime and highly leveraged loans, the definitions required under the proposal — which would be used to set a bank's premium — are more prescriptive.
For example, the 2001 guidance said subprime borrowers "may" contain "one or more" of various characteristics, including multiple late payments in a confined time period or low FICO scores, leaving it somewhat up to the institution how it classifies the loan.
But the new reporting requirement excludes the word "may," suggesting that a loan would have to be reported if it had just one of the characteristics.
FDIC officials said the definitions in the pricing rule were made more prescriptive than in an earlier proposal to prevent the use of overly subjective factors in charging premiums.
But bankers say the change requires a huge amount of information gathering that they do not currently undertake, including a detailed loan-by-loan analysis.
The challenge to collecting data would be even more dramatic in cases where the reporting institution did not originate the loan, but inherited it through a sale or other means.
"One specific concern is collecting relevant characteristics on existing loans where several of these factors are not retained post origination," wrote Thomas E. Bernhardt, senior vice president at the $70 billion-asset Northern Trust Co. in Chicago, in a May 16 letter.
"The less prescriptive definition contained in the 2001 interagency guidance on subprime lending could be implemented more easily, while achieving the FDIC's risk measurement objective."
Similarly, bankers complained that the proposed reporting requirements on leveraged lending — broadly meaning a loan to borrower with already high debt — depart from the OCC policy, which allows for more flexibility.
The OCC handbook "is far less prescriptive and states, expressly, that numerous definitions of leveraged lending exist in the financial services industry," Phillippi wrote.
He said the data "has not been tracked by banks in the form now required by the FDIC."
Some commenters proposed that the FDIC allow reporting banks to adhere to the earlier collection guidelines in the short term, while then phasing in the more demanding reporting requirements to stay consistent with the pricing rule.
"We acknowledge that this interim solution does not resolve the issue of how to report in compliance with the final rule those subprime and leveraged loans on the balance sheets of banks as of June 30, 2011, as well as new loans originated or acquired after June 30, 2011, but The Clearing House would be pleased to work with the FDIC to develop an approach to ensure consistent reporting to the FDIC and the banks' primary regulators," David Wagner, a senior vice president for the Clearing House Association, wrote in a May 16 letter.
