REPORT OF EXAMINATION INSTRUCTIONS Section 16.1
Report of Examination Instructions (4/24) 16.1-42 RMS Manual of Examination Policies
Federal Deposit Insurance Corporation
and other obligations either backed by the full faith and credit of or fully guaranteed by the U.S. Government
(hereafter referred to as “U.S. Government securities”) are considered risk-free from a credit risk standpoint.
Therefore, these securities and other assets collateralized by them should generally not be scheduled as
concentrations, provided the existence of the collateral has been verified.
However, examiners may exercise judgment in scheduling concentrations of U.S. Government securities if the
instruments could potentially impact an institution’s financial condition, particularly through market risk exposure.
For example, an examiner may list a concentration in U.S. Government securities (such as zero coupon bonds) that
present outsized market risk and potential depreciation in a changing interest rate environment. Finally,
concentrations for other U.S. Government-related securities that are not in the zero percent risk-weighted category
for regulatory capital purposes may be scheduled at examiner discretion.
U.S. Government-Guaranteed loans (GGLs) – Federal agencies
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(“agency” or “agencies”) that administer GGLs
provide a credit enhancement as an incentive for institutions to extend loans to individuals and businesses that may
not otherwise be eligible for conventional financing. GGL borrowers generally present greater credit risk than
conventional borrowers as they may lack adequate credit history, or have weak collateral, or present other elevated
risk characteristics. Examiners should consider the risk profile of the GGL concentration when assessing
concentration risk, including whether the guarantee is conditional or unconditional,
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the varying risks presented by
the guaranteed and unguaranteed portions, and whether the risk management framework is adequate to measure,
monitor, and control associated risks.
An institution’s participation in GGL programs is not without risk if the guarantee is conditioned upon the
institution complying with the agency’s regulations and program requirements. Noncompliance with a program’s
guarantee conditions may permit the agency to revoke the guarantee and restrict or suspend the institution’s
participation in the GGL program. For example, guarantees provided by the SBA are conditioned upon the loan
being prudently underwritten, approved, documented, closed, serviced, administered, and liquidated in accordance
with SBA requirements. Concentrations in GGLs held by the bank that are conditionally guaranteed by the U.S.
Government should be listed and analyzed, when applicable, on the Concentrations page if it meets the guidelines
and thresholds in these instructions.
GGL concentration listings and analysis should distinguish between the portions of loans that are guaranteed and
unguaranteed. Written analysis, when applicable, should include an assessment of the bank’s risk management
framework to ensure compliance with agency regulations and program requirements, and discuss any history of
partial or full denial of guarantees by the agency(s), or history of the institution withdrawing its guarantee purchase
or loss claim.
Concentration listings should only include loan amounts held by the bank and related commitments. GGLs that
have been sold would not be listed as concentrations if they are no longer assets or funding liabilities of the
institution.
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Real Estate Lending Concentrations - Analysis of concentrations in CRE lending is warranted, as evidenced by the
significant credit losses experienced in the past when such concentrations were coupled with weak loan underwriting
and depressed CRE markets.
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Accordingly, examiners should schedule non-owner occupied CRE concentrations
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For example, Small Business Administration (SBA), U.S. Department of Agriculture (USDA), U.S. Department of Housing and Urban
Development (HUD), the Veterans Administration (VA), and Export-Import Bank of the U.S. (EXIM).
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For context, for banks that calculate and report risk-based capital in RC-R, Part II, the portion of exposures originated and held, that are
conditionally guaranteed by the U.S. Government or U.S. Government agencies are assigned a 20 percent risk weight, whereas the portion of
exposures originated and held that are directly and unconditionally guaranteed by, the U.S. Government or U.S. Government agencies are assigned a
zero percent risk weight.
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Refer to Refer to RMS Manual Section 3.2 Loans, Loan Participations and Section 3.8 Off-Balance Sheet Activities for discussion of accounting
and call report treatment of loan participations and financial assets sold with, and without recourse; and, Call Report Glossary Transfers of Financial
Assets, including for when the guaranteed portions of SBA loans sold as participating interest of an entire financial asset qualify as a sale under ASC
Topic 860.
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See FDIC, History of the 80’s, Lessons for the Future, https://www.fdic.gov/bank/historical/history/ and FDIC, Crisis and Response, an FDIC
History, 2008-2013.