An interagency proposal to change what financial institutions must report on call reports is flawed in that it would add a new requirement to include modifications for borrowers experiencing financial difficulty, or FDMs, but in a manner that doesn’t align with generally accepted accounting principles and as a result, the banking agencies will lose out on the benefits of the GAAP-based metric, the American Bankers Association said Monday in comments to regulators.
Earlier this year, the Federal Reserve, FDIC and OCC proposed revisions to call reports to address previous changes in accounting that eliminated troubled debt restructurings. The revisions would also add an additional non-GAAP requirement that will adjust the amount currently reported as FDM in GAAP financial statements. In its letter, ABA said it supported the proposal’s changes to address the elimination of TDRs and conform to U.S. GAAP reporting standards for FDMs. However, the non-GAAP requirement does not align with the proposal’s stated objectives and appears to be isolated to the FDIC’s stated objective of capturing “elevated credit risk [associated with restructured loans that]is not necessarily eliminated within a given time frame” to be used in the large and highly complex assessment scorecards, the association said.
The additional non-GAAP requirement has significant costs and burdens that are borne by the banking agencies and all banks, including those that are not subject to the large and highly complex bank assessment scorecard, ABA said. The call report changes will affect all banks and it is unclear why the additional non-GAAP requirement is appropriate given the effects to the vast majority of banks that are not subject to the large and highly complex bank assessment scorecards, it added.