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    US Agency Publications Address Basel, Reporting, and CECL Developments

    May 09, 2022

    The Farm Credit Administration published, in the Federal Register, the final rule on implementation of the Current Expected Credit Losses (CECL) methodology for allowances, related adjustments to the tier 1-tier 2 capital rule, and conforming amendments. In addition, the Board of Governors of the Federal Reserve Bank (FED) and the Federal Deposit Insurance Corporation (FDIC) issued reporting updates while the Cleveland FED published a report on the impact of Basel III reforms.

    The Farm Credit Administration amended certain regulations to address changes in U.S. Generally Accepted Accounting Principles (GAAP), with final rule becoming effective on January 01, 2023. These amendments modify Farm Credit Administration's capital and other regulations, including certain regulatory disclosure requirements. Unlike the  the Federal banking regulatory agencies' (FBRAs) final CECL rule, the Farm Credit Administration did not propose and is not adopting an optional phase-in of the day-one impacts of CECL on regulatory capital ratios. FBRAs included an optional transition period for banking organizations to reduce the potential day-one adverse impacts CECL may have on a banking organization's regulatory capital ratios. FBRAs included this transition period because of concerns that some banking organizations might face difficulties in capital planning because of uncertainty about the economic environment at the time of CECL adoption. However, the Farm Credit Administration believes that the transition provision is unnecessary due to following three reasons:

    • Even without a transition period, Farm Credit Administration expects all institutions will be sufficiently capitalized to absorb the day-one impact of CECL for the purpose of complying with regulatory capital requirements.
    • Farm Credit Administration's capital requirements are comparable to the Basel III framework and the U.S. Rule even without an optional phase-in period.
    • Adopting an optional phase-in period would create significant operational burden and complexity with no corresponding benefit to the safety and soundness of institutions.

    To reflect these CECL-related changes, the Farm Credit Administration anticipates revising the Call Reports in the first quarter of 2023. These revisions would specify the affected line items in the capital schedules and the newly defined term adjusted allowances for credit losses. Farm Credit Administration also intends to update the Call Report instructions. The Farm Credit Administration is an independent federal agency that regulates and examines the banks, associations, and related entities of the Farm Credit System, including the Federal Agricultural Mortgage Corporation (Farmer Mac).

    The FED updated the reporting forms and instructions for FR 2052a, which is used to monitor the overall liquidity profile of certain supervised institutions. The FR 2052a collects quantitative information on select assets, liabilities, funding activities, and contingent liabilities of certain large banking organizations with USD 100 billion or more in total consolidated assets supervised by FED on a consolidated basis. Also, FED updated supplemental instructions for the information collection on consolidated financial statements for holding companies (FR Y-9C) while FDIC updated the supplemental instructions for Call Reports (FFIEC 031, FFIEC 041, or FFIEC 051). For institutions that have adopted the Accounting Standards Update (ASU 2022-02), “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures,” a new topic “Accounting for Loan Modifications to Borrowers Experiencing Financial Difficulties,” has been added to the attached March 2022 Supplemental Instructions for Call Reports. This topic provides guidance on how an institution should report its loan modifications to borrowers experiencing financial difficulties in the Call Report for the March 31, 2022 report date. Finally, FED approved the application of First Internet Bancorp from Indiana to acquire First Century Bancorp from Georgia.

     

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    Keywords: Americas, US, Banking, Basel, Regulatory Capital, CECL, Accounting, Disclosures, Reporting, FR 2052a, FR Y 9C, Farm Credit Administration, FED, Cleveland FED, US Agencies, LCR, Liquidity Risk, Call Reports, IFRS 9, FDIC, Headline

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