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December 21, 2018

US Agencies (FDIC, FED, and OCC) adopted the final rule to address changes to credit loss accounting under the U.S. generally accepted accounting principles; this includes banking organizations’ implementation of the current expected credit losses (CECL) methodology. The final rule becomes effective on April 01, 2019, although banking organizations may adopt the rule prior to this date. FED also issued a statement that provides additional information on positions that FED plans to take on incorporating the CECL accounting standard into its supervisory stress test and into its assessment of the company-run stress tests.

The final rule provides banking organizations with the option to phase in, over a three-year period, the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard. The rule also revises the regulatory capital rule, stress testing rule, and regulatory disclosure requirements of the US Agencies to reflect CECL and makes conforming amendments to other regulations that reference credit-loss allowances. In May 2018, the US Agencies issued a proposal that included amending certain rules to address the FASB's issuance of the Accounting Standards Update No. 2016-13, titled "Financial Instruments—Credit Losses" (ASU 2016-13). The consultation ended in July 2018. US Agencies received 25 comment letters from banking organizations, trade associations, public interest groups, and individuals. 

FED announced that it will maintain the current modeling framework for loan allowances in its supervisory stress test through 2021. For the supervisory stress test and the Comprehensive Capital Analysis and Review (CCAR), FED will not alter its modeling framework, as it relates to CECL, for the 2019, 2020, and 2021 cycles. FED intends to evaluate appropriate future enhancements to the current framework, as best practices for implementing CECL are developed. Bank holding companies required to perform company-run stress tests as part of CCAR will be required to incorporate CECL into those stress tests starting from the 2020 cycle. However, FED will not issue supervisory findings on those firms' allowance estimations in the CCAR exercise through 2021.

 

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Effective Date: April 01, 2019

Keywords: Americas, US, Banking, Accounting, IFRS 9, CECL, ASU 2016-13, Stress Testing, CCAR, US Agencies

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