Risk Management Manual of Examination Policies - FDIC

REPORT OF EXAMINATION INSTRUCTIONS Section 16.1
PURPOSE
CONCENTRATIONS
The purpose of this schedule is to identify possible absence of risk diversification within the institution's asset
structure. This schedule is informational and all concentrations listed should not automatically be subject to
criticism. However, if the intent is to criticize management's diversification policies, carry forward comments to the
RMA page or, if warranted, to the ECC page.
As a general rule, list concentrations by category according to their aggregate total as a percentage of Tier 1 Capital.
Use of this schedule is not limited to credit concentrations, but may also include other obligations or types of
concentrations where a lack of diversification is cause for regulatory concern (for example, letters of credit, higher
risk securities, leases, acceptances, and correspondent bank accounts).
Reminder: When capital is low enough to make a concentration by percentage of Tier 1 Capital meaningless, use
percentage of assets as a guideline (generally 2 percent of total assets).
CONCENTRATION CATEGORIES
1) Concentrations aggregating 25 percent or more of Tier 1 Capital should include concentrations by:
• individual borrower
• small, interrelated group of individuals
• single repayment source with normal credit risk or greater
• individual project
2) Concentrations representing 100 percent or more of Tier 1 Capital should include concentrations by:
• industry
• product line
• type of collateral
• short-term obligations of one financial institution or affiliate group
Note: List any concentration in the "25 percent" category if elevated risk is evident and/or it supports examination
findings.
U.S. GOVERNMENT SECURITIES
Securities issued by the U.S. Treasury, U.S. Government agencies and corporations, 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 as a practical matter to be riskless. Therefore, these securities, as well as
Federal funds transactions, and any other obligations collateralized by these securities, should not be scheduled as
concentrations, provided the existence of such collateral has been verified. When Federal funds transactions and
any other obligations are only partially collateralized by U.S. Government securities, do not schedule the
collateralized portion. However, while other high quality and readily marketable securities may be considered
nearly "riskless," such securities and assets collateralized by other than U.S. Government securities should be
scheduled as concentrations if equal to, or in excess of, the 25 percent or 100 percent benchmarks.
Note: Refer to Call Report Instructions for details regarding the definition of U.S. Government agencies and
corporations. For example, although debt obligations of Federal Home Loan Banks, the Federal Home Loan
Mortgage Corporation (FHLMC), and the Federal National Mortgage Association (FNMA) are not explicitly
DSC Risk Management Manual of Examination Policies 16.1-37 Report of Examination Instructions (12-04)
Federal Deposit Insurance Corporation