US Agencies (FDIC, FED, and OCC) published a final rule that makes technical changes to the March 31, 2020 interim final rule that provides a five-year transition period for the impact of the current expected credit loss (CECL) methodology on regulatory capital. This final rule corrects errors and clarifies the interim final rule, including rules affecting the agencies’ capital rules. The agencies are replacing the term “U.S. GAAP” with the term “GAAP,” which is the defined term in the capital rules, in addition to making certain other minor technical corrections. The final rule became effective on May 19, 2020.
The final rule, which modifies the interim final rule from March 31, 2020, applies to banks that were required (as of January 01, 2020) to adopt CECL under the generally accepted accounting principles or GAAP, including all OCC-supervised banks that implement CECL before the end of 2020. In addition to certain minor technical corrections, the technical changes to the interim final rule:
- Correct the unintentional omission of "Category III" banking organizations from the supplementary leverage ratio provision in paragraph (c)(2) of section 301 of the capital rules
- Clarify that changes to the calculation of the supplementary leverage ratio apply to all banking organizations that must comply with the supplementary leverage ratio requirement
- Clarify that, to the extent there is a day-one change for retained earnings, temporary difference deferred tax assets, and credit loss allowances, an electing banking organization would calculate each transitional amount as a positive or negative number
The interim final rule, which is being amended, provided banking organizations that adopt CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. This delay via the interim final rule was intended to ease the impact of COVID-19 crisis.
Effective Date: May 19, 2020
Keywords: Americas, US, Banking, CECL, GAAP, Topic 326, Regulatory Capital, Leverage Ratio, Technical Correction, Reporting, COVID-19, US Agencies
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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