{"data":{"id":"us/12-cfr-appendix-d-to-subpart-a-of-part-327","jurisdiction":"us","citation":"12 CFR Appendix D to Subpart A of Part 327","heading":"Appendix D to Subpart A of Part 327—Description of the Loss Severity Measure","body":"The loss severity measure applies a standardized set of assumptions to an institution's balance sheet to measure possible losses to the FDIC in the event of an institution's failure. To determine an institution's loss severity rate, the FDIC first applies assumptions about uninsured deposit and other unsecured liability runoff, and growth in insured deposits, to adjust the size and composition of the institution's liabilities. Assets are then reduced to match any reduction in liabilities. 1 The institution's asset values are then further reduced so that the Leverage ratio reaches 2 percent. 2 3 In both cases, assets are adjusted pro rata to preserve the institution's asset composition. Assumptions regarding loss rates at failure for a given asset category and the extent of secured liabilities are then applied to estimated assets and liabilities at failure to determine whether the institution has enough unencumbered assets to cover domestic deposits. Any projected shortfall is divided by current domestic deposits to obtain an end-of-period loss severity ratio. The loss severity measure is an average loss severity ratio for the three most recent quarters of data available.\nRunoff and Capital Adjustment Assumptions\nTable D.1 contains run-off assumptions.\nTable D.1—Runoff Rate Assumptions\nLiability type Runoff rate * (percent)\nInsured Deposits (10)\nUninsured Deposits 58\nForeign Deposits 80\nFederal Funds Purchased 100\nRepurchase Agreements 75\nTrading Liabilities 50\nUnsecured Borrowings ≤ 1 Year 75\nSecured Borrowings ≤ 1 Year 25\nSubordinated Debt and Limited Liability Preferred Stock 15\n* A negative rate implies growth.\nGiven the resulting total liabilities after runoff, assets are then reduced pro rata to preserve the relative amount of assets in each of the following asset categories and to achieve a Leverage ratio of 2 percent:\n• Cash and Interest Bearing Balances;\n• Trading Account Assets;\n• Federal Funds Sold and Repurchase Agreements;\n• Treasury and Agency Securities;\n• Municipal Securities;\n• Other Securities;\n• Construction and Development Loans;\n• Nonresidential Real Estate Loans;\n• Multifamily Real Estate Loans;\n• 1-4 Family Closed-End First Liens;\n• 1-4 Family Closed-End Junior Liens;\n• Revolving Home Equity Loans; and\n• Agricultural Real Estate Loans.\nRecovery Value of Assets at Failure\nTable D.2 shows loss rates applied to each of the asset categories as adjusted above.\nTable D.2—Asset Loss Rate Assumptions\nAsset category Loss rate (percent)\nCash and Interest Bearing Balances 0.0\nTrading Account Assets 0.0\nFederal Funds Sold and Repurchase Agreements 0.0\nTreasury and Agency Securities 0.0\nMunicipal Securities 10.0\nOther Securities 15.0\nConstruction and Development Loans 38.2\nNonresidential Real Estate Loans 17.6\nMultifamily Real Estate Loans 10.8\n1-4 Family Closed-End First Liens 19.4\n1-4 Family Closed-End Junior Liens 41.0\nRevolving Home Equity Loans 41.0\nAgricultural Real Estate Loans 19.7\nAgricultural Loans 11.8\nCommercial and Industrial Loans 21.5\nCredit Card Loans 18.3\nOther Consumer Loans 18.3\nAll Other Loans 51.0\nOther Assets 75.0\nSecured Liabilities at Failure\nFederal home loan bank advances, secured federal funds purchased and repurchase agreements are assumed to be fully secured. Foreign deposits are treated as fully secured because of the potential for ring fencing.\nLoss Severity Ratio Calculation\nThe FDIC's loss given failure (LGD) is calculated as:\nAn end-of-quarter loss severity ratio is LGD divided by total domestic deposits at quarter-end and the loss severity measure for the scorecard is an average of end-of-period loss severity ratios for three most recent quarters.","path":["Title 12—Banks and Banking","CHAPTER III—FEDERAL DEPOSIT INSURANCE CORPORATION","SUBCHAPTER B—REGULATIONS AND STATEMENTS OF GENERAL POLICY","PART 327—ASSESSMENTS","Subpart A—In General"],"source_url":"https://www.ecfr.gov/api/versioner/v1/full/2026-08-25/title-12.xml","current_through":"2026-08-25","vintage":"","retrieved_at":"2026-08-27T02:24:16Z","sha256":"14a9415cd4b052ff3af7aeb45f0dbe8789aa232ac5c5774f0214807d22fd5989","source_id":"us-cfr","stale":true,"prev":"us/12-cfr-appendix-c-to-subpart-a-of-part-327","next":"us/12-cfr-appendix-e-to-subpart-a-of-part-327"},"notice":"GroundRules: Original legal text. Not legal advice."}