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    FDIC Finalizes Rule to Resolve Double-Counting Associated with CECL

    February 16, 2021

    FDIC published a final rule that amends the risk-based deposit insurance assessment system applicable to all large insured depository institutions, including highly complex insured depository institutions. The final rule is aimed to address the effects of temporary deposit insurance assessment resulting from certain optional regulatory capital transition provisions related to the implementation of the current expected credit losses (CECL) methodology. The primary objective of the final rule is to remove the double-counting issue in several financial measures used to determine deposit insurance assessment rates for large and highly complex banks. The final rule will be effective from April 01, 2021.

    The final rule:

    • Amends the assessment regulations to remove double-counting of a portion of the CECL transitional amounts in certain financial measures used to determine deposit insurance assessments for large and highly complex banks. Certain financial measures are calculated by summing tier 1 capital, which includes the CECL transitional amounts, and reserves, already reflecting the implementation of CECL. As a result, a portion of the CECL transitional amount is being double-counted in these measures, which in turn affects assessment rates for large and highly complex banks.
    • Adjusts the calculation of the loss severity measure to remove double-counting of a specified portion of the CECL transitional amounts for a large or highly complex insured depository institution.
    • Amends the deposit insurance system applicable to large and highly complex banks only and does not affect the regulatory capital or the regulatory capital relief provided in the form of transition provisions that allow banking organizations to phase in the effects of CECL on their regulatory capital ratios.

    In calculating another measure—that is, the tier 1 leverage ratio—used to determine assessment rates for all insured depository institutions, FDIC would continue to apply the CECL regulatory capital transition provisions, consistent with the regulatory capital relief provided to address concerns that despite adequate capital planning, unexpected economic conditions at the time of CECL adoption could result in higher-than-anticipated increases in allowances. FDIC did not receive feedback to the proposal, which was issued in December 2020, and is adopting the proposed rule as final without change. Under this final rule, amendments to the deposit insurance assessment system and changes to thw regulatory reporting requirements will be applicable only while the regulatory capital relief described above, or any potential future amendment that may affect the calculation of CECL transitional amounts and the double-counting of these amounts for deposit insurance assessment purposes, is reflected in the regulatory reports of banks.

     

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    Effective Date: April 01, 2021

    Keywords: Americas, US, Banking, CECL, Regulatory Capital, Tier 1 Capital, Deposit Insurance, Leverage Ratio, Large Banks, Basel, FDIC

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