Background of Reporting Requirements Finalized Reporting Requirements Effective Dates and Adjustments Implications for Banks The Road Ahead
Background of Reporting Requirements Banks are already required to file quarterly Consolidated Reports of Condition and Income (call reports) that categorize various credit exposures. Since 2010, loans to nondepository financial institutions were reported in aggregate. However, due to concerns about the rapid growth of this sector and potential risks, regulators proposed in December 2023 to disaggregate this category.
Finalized Reporting Requirements The finalized rule expands the definition of nondepository financial institutions. Now, it includes:
-Mortgage companies
-Insurance companies
-Investment funds
-Pension funds
-Broker-dealers
-Securitization vehicles
-Other nonbank entities (with specific exclusions for securities-based margin loans)
The rule also requires banks to break down these loans into five distinct categories:
Loans to mortgage credit intermediaries
Loans to business credit intermediaries
Loans to private equity funds
Loans to consumer credit intermediaries
Other loans to nondepository financial institutions
Each category has detailed guidelines for inclusion, ensuring accurate reporting.
Effective Dates and Adjustments While initially proposed for June 30, 2024, the effective date has been pushed back to December 31, 2024. Regulators are also considering changes to align with country exposure reporting requirements. Notably, bank holding companies are exempt from these new rules.
Implications for Banks The new requirements will have several key impacts:
Regulatory Oversight: Regulators will use the detailed data to monitor risk concentrations and potential vulnerabilities in the banking system.
Potential Feedback: Regulatory feedback based on the reports could influence banks’ credit practices regarding nonbank lending.
Investor and Competitor Scrutiny: The call report data is public, so investors and competitors may use it to assess a bank’s risk profile and business strategies.
Uneven Burden: Some banks with relatively small nondepository financial institution loans may be disproportionately affected by the reporting burden, while smaller banks with significant nonbank lending could be exempt.
The Road Ahead These new reporting rules represent a significant shift in regulatory oversight of nonbank lending. Banks need to prepare for these changes by:
Understanding the Requirements: Familiarize yourself with the detailed guidelines and definitions for accurate reporting.
Assessing Data and Systems : Evaluate your existing data collection and reporting systems to ensure they can handle the new granularity.
Preparing for Compliance: Allocate resources and personnel to manage the increased reporting workload.
By proactively addressing these changes, banks can ensure smooth compliance and effectively manage their relationships with nonbank financial entities.
Insights gleaned from the Federal Register, Mayer Brown, and the SEC .
