United States

Revised interim final rule on CECL capital transition

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On March 31, 2020, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency issued a revised interim final rule clarifying the interaction between the initial interim final rule issued March 27, 2020 and the optional temporary relief provided to qualifying banking institutions for the adoption of Financial Accounting Standards Board Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, (CECL) through the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). Under the initial interim final rule, banking institutions that implement CECL during the 2020 calendar year are given the option to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period as originally announced in 2019. This ultimately results in up to a five-year transition in total, which is only available for those qualifying institutions that would have been required to adopt CECL for the purposes of U.S. generally accepted accounting principles (GAAP) during the 2020 calendar year end.  

The revised interim final rule clarifies the interaction of the initial interim final rule with the CARES Act for those banking institutions that elect to delay the adoption of CECL in accordance with what is permitted under the law. A banking institution’s five-year transition period under the interim final rule begins on the date it would have been required to adopt CECL under U.S. GAAP (i.e., January 1, 2020 for a calendar year end). If a banking institution uses the statutory relief and, upon adoption of CECL, wishes to use the additional two-year delay for capital purposes, it must prorate the two-year transition period by the number of quarters during which it did not adopt CECL under the CARES Act. A number of examples are provided in the revised interim final rule.  

As an alternative, banking institutions may elect to forego the additional two-year delay allowed under the interim final rule issued on March 27, 2020 and may use the regulatory capital transition rule issued by the banking agencies in February 2019.  


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