FDIC Relief Saves on Audit, Internal Control Reporting Costs

By Josh Stein

For banks that have experienced rapid and possibly short-term inflows of assets and deposits during the coronavirus pandemic, the FDIC this week issued an interim final rule providing relief from auditing, internal control and audit committee requirements that would have resulted from those inflows. Responding to requests from the ABA and its members, the rule allows banks to determine the applicability of Part 363 of the FDIC’s regulations for fiscal years ending in 2021 with their consolidated total assets as of Dec. 31, 2019, or the beginning of fiscal years ending in 2021, whichever is less.

As a quick reminder, rule part 363 requires independent audits for banks over $500 million in assets, an independent audit opinion over internal controls at $1 billion in assets, and at $3 billion; the requirement to include members with banking or related financial management expertise on audit committees and provide the audit committee with access to its own outside council; and they cannot include members who are large customers of the institution. Implementing these requirements can be difficult and costly. ABA analysis determined that approximately 290 banks may be impacted, based on June Call Report data, and that further stimulus measures enacted by Congress could increase that number significantly.

As FDIC Chief Accountant John Rieger stated in his presentation to the FDIC Board, “While some may have reached the thresholds through organic growth or other means, it is likely that others may not have reached the threshold, but for the effects of recent fiscal stimulus. Absent the regulatory relief afforded in this IFR, affected [banks]would be forced to incur additional compliance in related regulatory expenses due to these temporary programs. These expenses include engaging independent auditors, performing assessments of internal control over financial reporting, reviewing and filing reports, and modifying the makeup of the board of directors in order to comply with the requirements of part 363. This interim final rule will provide temporary relief from the temporary asset growth associated with pandemic-related programs… The IFR accomplishes this by allowing a [bank]to use the lower of the consolidated total assets as of Dec. 31, 2019, or the consolidated total assets as of the beginning of its fiscal year ending in 2021 for the purposes of determining compliance with part 363 for fiscal years ending 2021. The recommended IFR is time limited and apply for fiscal years ending in 2021 only.”

This was ABA’s preferred relief and the relief we specifically advocated for in our discussion with the FDIC. This is because it addresses overall balance growth, much of it due to record growth in deposits, and not just growth specific to participation government programs. As the public portion of the FDIC board meeting was concluding, I sent along thanks to John Rieger, who immediately responded with “You’re welcome!”

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Josh Stein

Josh Stein is VP for accounting policy at ABA.