NCUA Approves Rule on CECL Methodology Transition for Credit Unions
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
Featured Experts
Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.
Anna Krayn
CECL adoption expert; engagement manager for loss estimation, internal risk capability enhancement, and counterparty credit risk management
Masha Muzyka
CECL, IFRS 9, and IFRS 17 expert; credit risk and insurance risk specialist; strategic planning and credit analytics solutions consultant
Previous Article
MAS Revises Notices and Guidelines Applicable to Banks in SingaporeNext Article
EC Proposes Revisions to Consumer Credit DirectiveRelated Articles
EU Agencies Update LCR Rule and Macro-Prudential Policy Recommendation
The European Commission (EC) published the Delegated Regulation 2022/786 with regard to the liquidity coverage requirements for credit institutions under the Capital Requirements Regulation (CRR).
EBA Publishes Regulatory Standards to Identify Shadow Banking Entities
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures.
EIOPA Examines Physical Climate Risk Exposure, SII Non-Compliance
The European Insurance and Occupational Pensions Authority (EIOPA) published a report assessing insurers' exposure to physical climate change risks
NGFS Report Explores Quantification of Climate Risk Differentials
The Network for Greening the Financial System (NGFS) published two reports to aid central banks and regulators in their oversight of the financial sector and in their central bank operations
EC Publishes Results on Review of Web Accessibility Directive
The European Commission (EC) published the results of a public consultation, held in October 2021, on the review of the Web Accessibility Directive.
MAS Consults on Adjustment Spreads for Conversion of SOR Contracts
The Monetary Authority of Singapore (MAS) and the SC-STS are jointly consulting, until June 10, 2022, on setting adjustment spreads for the conversion of legacy SOR contracts to SORA reference rate.
OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities
The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.
EBA Proposes Standards to Support Secondary NPL Markets
The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.
EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution
The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).
EBA Issues Standards for Crowdfunding Service Providers Under ECSPR
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.
