The NCUA Board approved a final rule that facilitates the transition of federally insured credit unions to the current expected credit loss (CECL) methodology that is required under the Generally Accepted Accounting Principles (GAAP). The final rule provides that, for determining a federally insured credit union’s net worth classification under the prompt corrective action regulations, the Board will phase-in the day-one adverse effects on regulatory capital, which may result from the adoption of CECL. The final rule becomes effective on August 02, 2021.
The final rule is based on the changes proposed in August 2020 and considers the comments received on the proposed rule. The NCUA Board is finalizing the rule largely as proposed. Under the final rule, the day-one effects of CECL on a federally insured credit union’s net worth ratio would be phased-in over a three-year period, under the prompt corrective action regulations of NCUA. The phase-in would only be applied to the federally insured credit unions that adopt CECL for the fiscal years beginning on or after December 15, 2022, which is the deadline established by FASB for implementation of CECL. Credit unions that decide to adopt CECL for the fiscal years beginning before that date would not be eligible for the phase-in.
Consistent with the regulations issued by the other federal banking agencies, the final rule will temporarily mitigate the adverse prompt corrective action consequences of the day-one capital adjustments, while requiring that federally insured credit unions account for CECL for other purposes, such as call reports. The final rule also provides that federally insured credit unions with less than USD 10 million in assets are no longer required to determine their charges for loan losses in accordance with GAAP. These federally insured credit unions may instead use any reasonable reserve methodology (incurred loss), provided that it adequately covers known and probable loan losses. The final rule also clarifies that state-chartered federally insured credit unions that have less than USD 10 million in assets and that are required by state law to comply with GAAP are eligible for the transition phase-in. The final rule may revise existing information collection requirements to the Call Report. Should changes be made to the Call Report, they will be addressed in a separate Federal Register notice.
Effective Date: August 02, 2021
Keywords: Americas, US, Banking, Regulatory Capital, CECL, IFRS 9, Call Report, Credit Unions, US GAAP, NCUA
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
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