U.S. banking regulators have approved a rule that will make it harder to track troubled loans, drawing sharp criticism from academics and industry specialists who warn that it adds opacity to already fragile financial markets.
The rule, finalized in July 2025 and set to take effect this fall, will require banks to report only loan modifications made within the past 12 months. That shift includes commercial real estate loans, where higher interest rates and falling property valuations are already straining borrowers’ ability to refinance. The change means older troubled loans will roll out of reporting, reducing visibility into potential risks on banks’ balance sheets.
The Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corporation published the notice of rule change in the Federal Register on July 11, 2025, with a public comment period ending August 11. According to the regulators, the time limit aligns with accounting standards set by the Financial Accounting Standards Board.
Specifically, the rule cites paragraph 310-10-50-42 of FASB’s Accounting Standards Codification, which requires reporting entities to disclose modifications such as principal forgiveness, interest rate reductions, payment delays or loan extensions when dealing with borrowers in financial distress.
Under the previous framework, banks were required to report loan modifications cumulatively—meaning restructuring or relief granted to a troubled borrower remained on regulatory filings until the loan was repaid or otherwise resolved. “By limiting the reporting window to twelve months, banks can now restructure loans, extend terms, or adjust interest rates without triggering long-term visibility of troubled credit,” political economist Alexandru-Stefan Goghie wrote in an analysis of the change.
Some observers say the timing is especially problematic given market conditions. “It’s a terrible decision,” Rebel Cole, a finance professor at Florida Atlantic University and former Federal Reserve Board staff economist, told the Financial Times. “It’s more opacity during a time when we already have too much opacity.” A senior banker interviewed by the FT also argued the one-year reporting period was too short.
Data provided to the newspaper by BankRegData shows that the FDIC reported $81 billion in modified loans during the second quarter. But even before the rule takes effect, analysts note that changes in reporting standards have already muted the number of loans being flagged. After the FASB introduced the 12-month requirement, fewer modifications appeared in banks’ earnings reports, though institutions still had to share more details with creditors.
And more have expressed pessimism about the change. “I don’t view the change positively,” Christopher Whalen, chair of Whalen Global Advisors, told the FT. “I think [banks] are hiding long-term delinquency. That’s the style right now across the industry.”
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