US Agencies (FDIC, FED, and OCC) finalized three interim final rules that were published in March and April this year to ease the impact of disruptions caused by the COVID-19 pandemic. One of the final rules temporarily modifies the community bank leverage ratio (CBLR), as required under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Another rule makes more gradual, as intended, the automatic restrictions on distributions if a banking organization's capital levels decline below certain levels. The third rule allows institutions that adopt the current expected credit losses (CECL) accounting standard in 2020 to mitigate the estimated effects of CECL on regulatory capital for two years. The final rules are either identical or substantially similar to the interim final rules currently in effect. These rules impact various reporting forms—the FR Y-9C report, the FFIEC 101 report, the Call reports, and the FR Y-14 reports—for banks.
Rule on CBLR Transition Adjustments
US Agencies adopted revisions to the CBLR, which were made under two interim final rules that were issued in the Federal Register on April 23, 2020. The final rule adopts these interim final rules with no changes. The final rule temporarily lowers the CBLR threshold and provides a gradual transition back to the prior level. The threshold would be 8% for the remainder of this year, 8.5% for 2021, and 9% from the beginning of January 01, 2022. The final rule also maintains a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 1 percentage point below the applicable CBLR requirement. The final rule will be effective from November 09, 2020. The 8% CBLR remains available under the interim final rule, effective as of June 30, 2020. In addition, FED has now extended, with revision, the FR Y-9 reports, as proposed in the interim final rule, to align the reporting instructions with this final rule. In connection with the transition interim final rule, the agencies made revisions to the call reports and the FFIEC 101. The final changes to the call reports, the FFIEC 101, and their related instructions are addressed in a separate Federal Register notice.
Rule on Definition of Eligible Retained Income
This final rule adopts revisions to the definition of eligible retained income, which were made under the interim final rule that was published in the Federal Register on March 20, 2020, for all depository institutions, bank holding companies, and savings and loan holding companies subject to the regulatory capital rule. The final rule revises the definition of eligible retained income to make more gradual any automatic limitations on capital distributions that could apply under the agencies’ capital rule. Separately, in this final rule, FED is also adopting, as final, the definition of eligible retained income as included in the interim final rule that published in the Federal Register on March 26, 2020, for purposes of the total loss-absorbing capacity (TLAC) rule of FED. The final rule adopts these interim final rules with no changes. The final rule will be effective from January 01, 2021. In connection with the capital interim final rule, the agencies made revisions to their information collections for the call reports. The agencies are seeking comment in a separate Federal Register notice. However, there is no change to the call reports or their related instructions in connection with this final rule. Also, FED has now extended the FR Y-9 reports for three years, with revision, as proposed in the capital interim final rule, to align the reporting instructions with this final rule.
Rule on Revised CECL Transition in the Capital Rule
The final rule is consistent with the interim final rule that was published in the Federal Register on March 31, 2020, with certain clarifications and minor adjustments related to the mechanics of the transition and the eligibility criteria for applying the transition. The final rule provides eligible institutions with the option to delay for up to two years an estimate of the effect of CECL on regulatory capital, followed by a three-year transition period (the 2020 CECL transition). The final rule would also permit use of the 2020 CECL transition provision by any banking organization that adopts CECL during the 2020 calendar year, including the organizations that adopt CECL early. In addition, the final rule would not require an electing banking organization to apply the transitional amounts in any quarter in which application of the transition provision would result in a reduction in retained earnings. The final rule will be effective as of the date of its publication in the Federal Register (September 30, 2020). The 2020 CECL transition provision remains available under the interim final rule prior to that effective date. In addition, FED has now extended, with revision, the FR Y-9 and capital assessments and stress testing reports (FR Y-14A/Q/M) as proposed in the interim final rule, except for minor clarifications, to align the reporting instructions with this final rule. Additionally, in connection with the interim final rule, the agencies made revisions to the Call reports and the FFIEC 101. The final changes to the Call reports, the FFIEC 101, and the related instructions will be addressed in a separate Federal Register notice.
- Press Release
- Federal Register Notice on CBLR Transition Rule
- Final Rule on Definition of Eligible Retained Income (PDF)
- Federal Register Notice on CECL Transition Rule
Effective Date: September 30, 2020 (CECL), November 09, 2020 (CBLR)/January 01, 2021 (Retained Income)
Keywords: Americas, US, Banking, COVID-19, CBLR Framework, CARES Act, Regulatory Capital, Eligible Retained Income, CECL, IFRS 9, Reporting, Call Reports, FR Y-9C, FR Y-14, TLAC, Basel, 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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