Alert March 02, 2010

Federal Banking Agencies Clarify Risk Weights for FDIC Claims and Guarantees

The federal banking agencies (the “Agencies”) clarified the risk weights for claims on or guaranteed by the FDIC for purposes of banking organizations’ risk-based capital requirements.  Direct claims on and claims unconditionally guaranteed by the FDIC (such as FDIC-insured deposits, prepaid assessments of deposit insurance premiums and debt guaranteed under the Temporary Liquidity Guarantee Program) may be assigned a zero percent risk weight.  Recent loss-sharing agreements entered into by the FDIC, though, are considered conditional guarantees for risk-based capital purposes due to contractual conditions that acquirers must meet, and therefore are not eligible for a zero percent risk weight.  Instead, the guaranteed portion of assets subject to such a loss-sharing agreement may be assigned a 20 percent risk weight.  The Agencies also advised banking organizations to consult with their primary federal regulator to determine the appropriate risk-based capital treatment for specific loss-sharing agreements, as the specific terms of each agreement may vary.