Revised Transition of the Current Expected Credit Losses Methodology for Allowances
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FDIC Financial Institution Letters › Revised Transition of the Current Expected Credit Losses Methodology for Allowances
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Federal Register / Vol. 85, No. 190 / Wednesday, September 30, 2020 / Rules and Regulations
1 ASU 2016–13 covers measurement of credit
losses on financial instruments and includes three
subtopics within Topic 326: (i) Subtopic 326–10
Financial Instruments—Credit Losses—Overall; (ii)
Subtopic 326–20: Financial Instruments—Credit
Losses—Measured at Amortized Cost; and (iii)
Subtopic 326–30: Financial Instruments—Credit
Losses—Available-for-Sale Debt Securities.
2 Banking organizations subject to the capital rule
include national banks, state member banks, state
nonmember banks, savings associations, and top-
tier bank holding companies and savings and loan
holding companies domiciled in the United States
not subject to the Board’s Small Bank Holding
Company Policy Statement (12 CFR part 225,
appendix C), but exclude certain savings and loan
holding companies that are substantially engaged in
insurance underwriting or commercial activities or
that are estate trusts, and bank holding companies
and savings and loan holding companies that are
employee stock ownership plans.
3 84 FR 4222 (February 14, 2019).
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 3
[Docket ID OCC–2020–0010]
RIN 1557–AE82
FEDERAL RESERVE SYSTEM
12 CFR Part 217
[Regulation Q; Docket No. R–1708]
RIN 7100–AF82
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 324
RIN 3064–AF42
Regulatory Capital Rule: Revised
Transition of the Current Expected
Credit Losses Methodology for
Allowances
AGENCY: Office of the Comptroller of the
Currency, Treasury; the Board of
Governors of the Federal Reserve
System; and the Federal Deposit
Insurance Corporation.
ACTION: Final rule
t No. R–1708]
RIN 7100–AF82
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 324
RIN 3064–AF42
Regulatory Capital Rule: Revised
Transition of the Current Expected
Credit Losses Methodology for
Allowances
AGENCY: Office of the Comptroller of the
Currency, Treasury; the Board of
Governors of the Federal Reserve
System; and the Federal Deposit
Insurance Corporation.
ACTION: Final rule.
SUMMARY: The Office of the Comptroller
of the Currency, the Board of Governors
of the Federal Reserve System, and the
Federal Deposit Insurance Corporation
(collectively, the agencies) are adopting
a final rule that delays the estimated
impact on regulatory capital stemming
from the implementation of Accounting
Standards Update No. 2016–13,
Financial Instruments—Credit Losses,
Topic 326, Measurement of Credit
Losses on Financial Instruments (CECL).
The final rule provides banking
organizations that implement CECL
during the 2020 calendar year the
option to delay for two years an estimate
of CECL’s effect on regulatory capital,
relative to the incurred loss
methodology’s effect on regulatory
capital, followed by a three-year
transition period. The agencies are
providing this relief to allow these
banking organizations to better focus on
supporting lending to creditworthy
households and businesses in light of
recent strains on the U.S. economy as a
result of the coronavirus disease 2019,
while also maintaining the quality of
regulatory capital. This final rule is
consistent with the interim final rule
published in the Federal Register on
March 31, 2020, with certain
clarifications and minor adjustments in
response to public comments related to
the mechanics of the transition and the
eligibility criteria for applying the
transition.
DATES: The final rule is effective
September 30, 2020
taining the quality of
regulatory capital. This final rule is
consistent with the interim final rule
published in the Federal Register on
March 31, 2020, with certain
clarifications and minor adjustments in
response to public comments related to
the mechanics of the transition and the
eligibility criteria for applying the
transition.
DATES: The final rule is effective
September 30, 2020.
FOR FURTHER INFORMATION CONTACT:
OCC: Jung Sup Kim, Capital and
Regulatory Policy, (202) 649–6528; or
Kevin Korzeniewski, Counsel, Chief
Counsel’s Office, (202) 649–5490, or for
persons who are deaf or hearing
impaired, TTY, (202) 649–5597, Office
of the Comptroller of the Currency, 400
7th Street SW, Washington, DC 20219.
Board: Constance M. Horsley, Deputy
Associate Director, (202) 452–5239; Juan
C. Climent, Assistant Director, (202)
872–7526; Andrew Willis, Lead
Financial Institution Policy Analyst,
(202) 912–4323; or Michael Ofori-
Kuragu, Senior Financial Institution
Policy Analyst II, (202) 475–6623,
Division of Supervision and Regulation;
or Benjamin W. McDonough, Assistant
General Counsel, (202) 452–2036; David
W. Alexander, Senior Counsel, (202)
452–2877; or Jonah Kind, Senior
Attorney, (202) 452–2045, Legal
Division, Board of Governors of the
Federal Reserve System, 20th and C
Streets NW, Washington, DC 20551. For
the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), (202) 263–4869.
FDIC: Bobby R
n;
or Benjamin W. McDonough, Assistant
General Counsel, (202) 452–2036; David
W. Alexander, Senior Counsel, (202)
452–2877; or Jonah Kind, Senior
Attorney, (202) 452–2045, Legal
Division, Board of Governors of the
Federal Reserve System, 20th and C
Streets NW, Washington, DC 20551. For
the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), (202) 263–4869.
FDIC: Bobby R. Bean, Associate
Director, bbean@fdic.gov; Benedetto
Bosco, Chief, Capital Policy Section,
bbosco@fdic.gov; Noah Cuttler, Senior
Policy Analyst, ncuttler@fdic.gov;
Andrew Carayiannis, Senior Policy
Analyst, acarayiannis@fdic.gov;
regulatorycapital@fdic.gov; Capital
Markets Branch, Division of Risk
Management Supervision, (202) 898–
6888; or Michael Phillips, Counsel,
mphillips@fdic.gov; Catherine Wood,
Counsel, cawood@fdic.gov; Francis Kuo,
Counsel, fkuo@fdic.gov; Supervision
and Legislation Branch, Legal Division,
Federal Deposit Insurance Corporation,
550 17th Street NW, Washington, DC
20429. For the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), (800) 925–4618.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
II. Summary of Comments to the Interim
Final Rule
III. The Final Rule
A. Approximating the Impact of CECL
B. Mechanics of the 2020 CECL Transition
Provision
C. 2020 CECL Adopters
D. Transitions Applicable to Advanced
Approaches Banking Organizations
E. Other Considerations
F. Technical Amendments to the Interim
Final Rule
IV. Impact Assessment
V. Administrative Law Matters
A. Administrative Procedure Act
B. Congressional Review Act
C. Paperwork Reduction Act
D. Regulatory Flexibility Act
E. Riegle Community Development and
Regulatory Improvement Act of 1994
F. Plain Language
G. Unfunded Mandates Reform Act
I. Background
In 2016, the Financial Accounting
Standards Board (FASB) issued
Accounting Standards Update (ASU)
No
ent
V. Administrative Law Matters
A. Administrative Procedure Act
B. Congressional Review Act
C. Paperwork Reduction Act
D. Regulatory Flexibility Act
E. Riegle Community Development and
Regulatory Improvement Act of 1994
F. Plain Language
G. Unfunded Mandates Reform Act
I. Background
In 2016, the Financial Accounting
Standards Board (FASB) issued
Accounting Standards Update (ASU)
No. 2016–13, Financial Instruments—
Credit Losses, Topic 326, Measurement
of Credit Losses on Financial
Instruments.1 The update resulted in
significant changes to credit loss
accounting under U.S. generally
accepted accounting principles (GAAP).
The revisions to credit loss accounting
under GAAP included the introduction
of the current expected credit losses
methodology (CECL), which replaces
the incurred loss methodology for
financial assets measured at amortized
cost. For these assets, CECL requires
banking organizations 2 to recognize
lifetime expected credit losses and to
incorporate reasonable and supportable
forecasts in developing the estimate of
lifetime expected credit losses, while
also maintaining the current
requirement that banking organizations
consider past events and current
conditions.
On February 14, 2019, the Office of
the Comptroller of the Currency (OCC),
the Board of Governors of the Federal
Reserve System (Board), and the Federal
Deposit Insurance Corporation (FDIC)
(collectively, the agencies) issued a final
rule that revised certain regulations to
account for the aforementioned changes
to credit loss accounting under GAAP,
including CECL (2019 CECL rule).3 The
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deral
Deposit Insurance Corporation (FDIC)
(collectively, the agencies) issued a final
rule that revised certain regulations to
account for the aforementioned changes
to credit loss accounting under GAAP,
including CECL (2019 CECL rule).3 The
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4 12 CFR part 3 (OCC); 12 CFR part 217 (Board);
12 CFR part 324 (FDIC).
5 See 12 U.S.C. 1831n; See also current versions
of the following: Instructions for Preparation of
Consolidated Financial Statements for Holding
Companies, Reporting Form FR Y–9C; Instructions
for Preparation of Consolidated Reports of
Condition and Income, Reporting Forms FFIEC 031
and FFIEC 041; Instructions for Preparation of
Consolidated Reports of Condition and Income for
a Bank with Domestic Offices Only and Total Assets
Less than $1 Billion, Reporting Form FFIEC 051.
6 85 FR 17723 (March 31, 2020).
2019 CECL rule revised the agencies’
regulatory capital rule (capital rule),4
stress testing rules, and regulatory
disclosure requirements to reflect CECL,
and made conforming amendments to
other regulations that reference credit
loss allowances. The 2019 CECL rule
applies to banking organizations that
file regulatory reports for which the
accounting principles are uniform and
consistent with GAAP,5 including
banking organizations that are subject to
the capital rule or stress testing
requirements.
The 2019 CECL rule also includes a
transition provision that allows banking
organizations to phase in over a three-
year period the day-one adverse effects
of CECL on their regulatory capital
ratios
latory reports for which the
accounting principles are uniform and
consistent with GAAP,5 including
banking organizations that are subject to
the capital rule or stress testing
requirements.
The 2019 CECL rule also includes a
transition provision that allows banking
organizations to phase in over a three-
year period the day-one adverse effects
of CECL on their regulatory capital
ratios. The agencies intend for the
transition provision to address concerns
that despite adequate capital planning,
unexpected economic conditions at the
time of CECL adoption could result in
higher-than-anticipated increases in
allowances. This increase in allowances
is expected largely because CECL
requires banking organizations to
consider current and reasonable and
supportable forecasts of future economic
conditions to estimate credit loss
allowances.
On March 31, 2020, as part of efforts
to address the disruption of economic
activity in the United States caused by
the spread of coronavirus disease 2019
(COVID–19), the agencies adopted a
second CECL transition provision
through an interim final rule.6 This
transition provision provides banking
organizations that were required to
adopt CECL for purposes of GAAP (as in
effect January 1, 2020), for a fiscal year
that begins during the 2020 calendar
year, the option to delay for up to two
years an estimate of CECL’s effect on
regulatory capital, followed by a three-
year transition period (i.e., a five-year
transition period in total). The agencies
provided this relief in response to the
additional operational challenges and
resource burden of implementing CECL
amid the uncertainty caused by recent
strains on the U.S. economy so that
adopting banking organizations may
better focus on supporting lending to
creditworthy households and
businesses, while maintaining the
quality of regulatory capital and
reducing the potential for competitive
inequities across banking organizations
onal operational challenges and
resource burden of implementing CECL
amid the uncertainty caused by recent
strains on the U.S. economy so that
adopting banking organizations may
better focus on supporting lending to
creditworthy households and
businesses, while maintaining the
quality of regulatory capital and
reducing the potential for competitive
inequities across banking organizations.
Under the interim final rule, an
eligible banking organization would
make an election to use the 2020 CECL
transition provision in its first
Consolidated Reports of Condition and
Income (Call Report) or Consolidated
Financial Statements for Holding
Companies (FR Y–9C) filed during the
2020 calendar year after it meets the
eligibility requirements. The interim
final rule provides electing banking
organizations with a methodology for
delaying the effect on regulatory capital
of an estimated increase in the
allowances for credit losses (ACL) that
can be attributed to the adoption of
CECL, relative to an estimated increase
in the allowance for loan and lease
losses (ALLL) that would occur for
banking organizations operating under
the incurred loss methodology. The
interim final rule does not replace the
three-year transition provision in the
2019 CECL rule, which remains
available to any banking organization at
the time that it adopts CECL. Banking
organizations that were required to
adopt CECL during the 2020 calendar
year have the option to elect the three-
year transition provision contained in
the 2019 CECL rule or the 2020 CECL
transition provision contained in the
interim final rule, beginning with the
March 31, 2020, Call Report or FR
Y–9C.
II. Summary of Comments to the
Interim Final Rule
The agencies received six public
comments on the interim final rule from
banking organizations and interest
groups
the option to elect the three-
year transition provision contained in
the 2019 CECL rule or the 2020 CECL
transition provision contained in the
interim final rule, beginning with the
March 31, 2020, Call Report or FR
Y–9C.
II. Summary of Comments to the
Interim Final Rule
The agencies received six public
comments on the interim final rule from
banking organizations and interest
groups. Commenters supported the
objectives of the interim final rule
because it provides banking
organizations additional flexibility to
lend to creditworthy borrowers in the
current economic environment, without
imposing undue regulatory burden.
However, several commenters suggested
that the regulatory capital relief
provided in the interim final rule is
insufficient, especially given the current
economic downturn. Some of these
commenters asserted either that banking
organizations should be permitted to
add back a larger proportion of the ACL
(temporarily or permanently) to
common equity tier 1 capital or that the
methodology for calculating the add-
back should address certain
commenters’ concerns regarding pro-
cyclicality and differences in credit
portfolios. One commenter asked the
FASB and the agencies to allow banking
organizations of all sizes the option to
defer the implementation of CECL until
2025, given current economic
uncertainties. This commenter asserted
that without a longer delay, community
banking organizations may need to
maintain loan portfolios with a credit
profile that minimizes the regulatory
capital volatility caused by CECL, rather
than loan portfolios that meet the credit
needs of the community. One
commenter suggested that the agencies
reevaluate whether to increase the
amount of ACL includable in tier 2
capital on a permanent basis to address
the commenter’s concerns regarding
pro-cyclicality and CECL.
III
n portfolios with a credit
profile that minimizes the regulatory
capital volatility caused by CECL, rather
than loan portfolios that meet the credit
needs of the community. One
commenter suggested that the agencies
reevaluate whether to increase the
amount of ACL includable in tier 2
capital on a permanent basis to address
the commenter’s concerns regarding
pro-cyclicality and CECL.
III. The Final Rule
The final rule is consistent with the
interim final rule with some
clarifications and adjustments related to
the calculation of the transitions and the
eligibility criteria for using the 2020
CECL transition provision, as discussed
below.
A. Approximating the Impact of CECL
As discussed in the Supplementary
Information to the interim final rule, the
agencies considered different ways for
determining the portion of credit loss
allowances attributable to CECL that is
eligible for transitional regulatory
capital relief. To best capture the effects
of CECL on regulatory capital, it would
be necessary for a banking organization
to calculate the effect on retained
earnings of measuring credit loss
allowances using both the incurred loss
methodology and CECL. This approach,
however, would require a banking
organization to maintain the equivalent
of two separate loss-provisioning
processes. For many banking
organizations that have adopted CECL,
it would be burdensome to track credit
loss allowances under both CECL and
the incurred loss methodology, due to
significant CECL-related changes
already incorporated in internal systems
or third-party vendor systems in place
of elements of the incurred loss
methodology. Further, if banking
organizations were to maintain separate
loss provisioning processes, there would
also be burden associated with having to
subject the incurred loss methodology to
internal controls and supervisory
oversight, which may in some respects
differ from the controls and oversight
over CECL
or third-party vendor systems in place
of elements of the incurred loss
methodology. Further, if banking
organizations were to maintain separate
loss provisioning processes, there would
also be burden associated with having to
subject the incurred loss methodology to
internal controls and supervisory
oversight, which may in some respects
differ from the controls and oversight
over CECL. One commenter agreed that
maintaining separate ongoing
calculations of loan losses under two
processes would entail significant
burden.
To address concerns regarding burden
and to promote a consistent approach
across electing banking organizations,
the interim final rule provided a
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7 See Loudis, Bert and Ben Ranish. (2019) ‘‘CECL
and the Credit Cycle.’’ Finance and Economics
Discussion Series Working Paper 061. Available at:
https://www.federalreserve.gov/econres/feds/files/
2019061pap.pdf and Covas, Francisco and William
Nelson. ‘‘Current Expected Credit Loss: Lessons
from 2007–2009.’’ (2018) Banking Policy Institute
Working Paper. Available at: https://bpi.com/
wpcontent/uploads/2018/07/CECL_WP-2.pdf; the
agencies reviewed data from public securities
filings of various large banking organizations. These
organizations reported allowances and provisions
under CECL, on a weighted-average basis,
approximately 30 percent higher on a pre-tax basis
and 25 percent higher on an after-tax basis. The
agencies chose a scalar closer to the after-tax
median to avoid additional burden involved with
making quarterly tax adjustments throughout the
transition period.
8 See 85 FR 29839 (May 19, 2020).
uniform approach for estimating the
effect of CECL during the first two years
of the five-year transition period
ercent higher on a pre-tax basis
and 25 percent higher on an after-tax basis. The
agencies chose a scalar closer to the after-tax
median to avoid additional burden involved with
making quarterly tax adjustments throughout the
transition period.
8 See 85 FR 29839 (May 19, 2020).
uniform approach for estimating the
effect of CECL during the first two years
of the five-year transition period.
Specifically, the interim final rule
introduced a 25 percent scaling factor
that approximates the average after-tax
provision for credit losses attributable to
CECL, relative to the incurred loss
methodology, in a given reporting
quarter.
Some commenters asserted that the 25
percent scaling factor was too low and
that it was based on forecasts of benign
economic conditions that existed at the
beginning of 2020. Further, some
commenters stated that the scaling
factor could lead to disparate impacts
on the availability of credit to different
types of borrowers. These commenters
suggested that a 100 percent add-back of
incremental CECL allowances to
regulatory capital would be appropriate
for the duration of the transition period
or until a longer-term solution is
developed by the agencies for
addressing potential unintended
consequences of CECL on regulatory
capital requirements. Other commenters
stated that the regulatory capital relief
provided through the interim final rule
should be permanent to acknowledge
the fundamental changes that CECL has
introduced to credit loss allowance
practices, to avoid the need for the
agencies to intervene each time the
economy contracts, and to promote
credit availability in all economic
conditions.
The agencies also received several
comments on the precision of the 25
percent scaling factor
through the interim final rule
should be permanent to acknowledge
the fundamental changes that CECL has
introduced to credit loss allowance
practices, to avoid the need for the
agencies to intervene each time the
economy contracts, and to promote
credit availability in all economic
conditions.
The agencies also received several
comments on the precision of the 25
percent scaling factor. One commenter
supported the interim final rule’s
uniform scaling approach because it
does not require banking organizations
to calculate provisions under both the
CECL and incurred loss methodologies,
noting that such a requirement would
have been labor-intensive and costly.
Another commenter supported the
objective of the agencies to make the
regulatory capital impact of near-term
accounting for credit losses under CECL
through the crisis roughly comparable to
the regulatory capital impact under the
incurred loss methodology. However,
this commenter asserted that a dynamic
scaling factor that increases over time to
50 percent and then reduces to zero
percent over a nine quarter period
would achieve this objective more
effectively and accurately.
After considering these comments, the
agencies have decided to retain the 25
percent scaling factor provided in the
interim final rule. In developing an
approach for adding back an amount of
ACL measured under CECL to
regulatory capital, the agencies have
provided a measure of capital relief for
banking organizations while not
creating undue burden. In the agencies’
view, this approach should also
consider the fundamental differences
between CECL and the incurred loss
methodology. Both CECL and the
incurred loss methodology take into
account historical credit loss experience
and current conditions when estimating
credit loss allowances; however, CECL
also requires consideration of the effect
of reasonable and supportable forecasts
on collectability. This naturally causes a
difference in the timing of the build-up
of allowances
CL and the incurred loss
methodology. Both CECL and the
incurred loss methodology take into
account historical credit loss experience
and current conditions when estimating
credit loss allowances; however, CECL
also requires consideration of the effect
of reasonable and supportable forecasts
on collectability. This naturally causes a
difference in the timing of the build-up
of allowances. This difference in timing
makes it more difficult to calibrate a
more precise scaling factor that changes
during a transition period because
establishing the increases and decreases
in the scaling factor that should apply
for particular quarters during this period
would require the agencies to anticipate
the peaks and troughs of the economic
crisis. Further, the amount of
allowances required under CECL as
compared to the incurred loss
methodology is affected by the
composition of a banking organization’s
credit exposures subject to CECL. As a
result, developing a scaling factor that
changes over the course of a transition
period could exacerbate inequities
among banking organizations whose
credit exposures might be weighted
toward particular loan types. As noted
in the Supplemental Information to the
interim final rule, the agencies believe
that the 25 percent scaling factor
provides a reasonable estimate of the
portion of the increase in allowances
related to CECL relative to the incurred
loss methodology.7 In addition, the
uniform calibration promotes
competitive equity in the current
economic environment between electing
banking organizations and those
banking organizations that have not yet
adopted CECL.
B. Mechanics of the 2020 CECL
Transition Provision
The Supplementary Information to
the interim final rule states that an
electing banking organization must
calculate transitional amounts for the
following items: Retained earnings,
temporary difference deferred tax assets
(DTAs), and credit loss allowances
eligible for inclusion in regulatory
capital
ons that have not yet
adopted CECL.
B. Mechanics of the 2020 CECL
Transition Provision
The Supplementary Information to
the interim final rule states that an
electing banking organization must
calculate transitional amounts for the
following items: Retained earnings,
temporary difference deferred tax assets
(DTAs), and credit loss allowances
eligible for inclusion in regulatory
capital. For each of these items, the
transitional amount is equal to the
difference between the electing banking
organization’s closing balance sheet
amount for the fiscal year-end
immediately prior to its adoption of
CECL (pre-CECL amount) and its
balance sheet amount as of the
beginning of the fiscal year in which it
adopts CECL (post-CECL amount) (i.e.,
day-one transitional amounts). To
calculate the transitional amounts for
these items, an electing banking
organization must first calculate, as
provided in the 2019 CECL rule, the
CECL transitional amount, the adjusted
allowances for credit losses (AACL)
transitional amount, and the DTA
transitional amount. The CECL
transitional amount is equal to the
difference between an electing banking
organization’s pre-CECL and post-CECL
amounts of retained earnings at
adoption. The AACL transitional
amount is equal to the difference
between an electing banking
organization’s pre-CECL amount of
ALLL and its post-CECL amount of
AACL at adoption. The DTA transitional
amount is the difference between an
electing banking organization’s pre-
CECL amount and post-CECL amount of
DTAs at adoption due to temporary
differences.
The agencies received several
comments from banking organizations
requesting clarification about how the
day-one changes to the CECL
transitional amount, DTA transitional
amount, and AACL transitional amount
should be calculated when an electing
banking organization experiences a day-
one increase in retained earnings
nd post-CECL amount of
DTAs at adoption due to temporary
differences.
The agencies received several
comments from banking organizations
requesting clarification about how the
day-one changes to the CECL
transitional amount, DTA transitional
amount, and AACL transitional amount
should be calculated when an electing
banking organization experiences a day-
one increase in retained earnings. To the
extent there is a day-one change for
these items, an electing banking
organization would calculate each
transitional amount as a positive or
negative number. For example, an
electing banking organization with an
increase in retained earnings upon
adopting CECL would treat this amount
as a negative value when calculating its
modified CECL transitional amount for
purposes of the 2020 CECL transition.8
The agencies adopted the 2020 CECL
transition provision to mitigate the
adverse effect of CECL on regulatory
capital based on an estimated difference
between allowances under the incurred
loss methodology and CECL amid the
uncertainty caused by recent strains on
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9 See 12 CFR 3.100(d) (OCC); 12 CFR 217.100(d)
(Board); 12 CFR 324.100(d) (FDIC).
10 See Coronavirus Aid, Relief, and Economic
Security Act, Public Law 116–136, 4014, 134 Stat.
281 (Mar. 27, 2020). The CARES Act provides
banking organizations optional temporary relief
from complying with CECL ending on the earlier of
Vol. 85, No. 190 / Wednesday, September 30, 2020 / Rules and Regulations
9 See 12 CFR 3.100(d) (OCC); 12 CFR 217.100(d)
(Board); 12 CFR 324.100(d) (FDIC).
10 See Coronavirus Aid, Relief, and Economic
Security Act, Public Law 116–136, 4014, 134 Stat.
281 (Mar. 27, 2020). The CARES Act provides
banking organizations optional temporary relief
from complying with CECL ending on the earlier of
(1) the termination date of the current national
emergency, declared by the President on March 13,
2020 under the National Emergencies Act (50 U.S.C.
1601 et seq.) concerning COVID–19, or (2)
December 31, 2020.
the U.S. economy. To help achieve this
goal, the final rule revises the capital
rule to clarify that an electing banking
organization is not required to apply the
transitional amounts in any quarter in
which it would not reflect a positive
modified CECL transitional amount (i.e.,
when applying the transition would
result in a decrease to retained earnings
for regulatory capital).9 During quarters
in which a banking organization does
not calculate a positive modified CECL
transitional amount, the electing
banking organization would not reflect
any of the transitional amounts in its
regulatory capital calculations.
However, the banking organization
subsequently could resume applying the
transitional amounts in the remaining
quarters of the transition period if the
banking organization calculates a
positive modified CECL transitional
amount during any of those quarters.
The agencies are incorporating this
clarification in this final rule. The
agencies also are adopting as final all
other aspects of the interim final rule
related to the calculation of the
transitional amounts.
Under the final rule, an electing
banking organization must adjust
several key inputs to regulatory capital
for purposes of the 2020 CECL
transition, in addition to the day-one
transitional amounts
ncorporating this
clarification in this final rule. The
agencies also are adopting as final all
other aspects of the interim final rule
related to the calculation of the
transitional amounts.
Under the final rule, an electing
banking organization must adjust
several key inputs to regulatory capital
for purposes of the 2020 CECL
transition, in addition to the day-one
transitional amounts. In adjusting
regulatory capital inputs, first an
electing banking organization must
increase retained earnings by a modified
CECL transitional amount. The modified
CECL transitional amount is adjusted to
reflect changes in retained earnings due
to CECL that occur during the first two
years of the five-year transition period.
The change in retained earnings due to
CECL is calculated by taking the change
in reported AACL relative to the first
day of the fiscal year in which CECL
was adopted and applying a scaling
multiplier of 25 percent during the first
two years of the transition period.
Second, an electing banking
organization must decrease AACL by
the modified AACL transitional amount.
The modified AACL transitional amount
reflects an estimate of the change in
credit loss allowances attributable to
CECL that occurs during the first two
years of the five-year transition period.
This estimated change in credit loss
allowances due to CECL is calculated
with the same method used for the
modified CECL transitional amount.
Two additional regulatory capital
inputs—temporary difference DTAs and
average total consolidated assets—are
also subject to adjustments. Reported
average total consolidated assets for
purposes of the leverage ratio is
increased by the amount of the modified
CECL transitional amount, and
temporary difference DTAs are
decreased by the DTA transitional
amount as under the 2019 CECL rule.
The agencies received one comment
pertaining to the treatment of temporary
difference DTAs
lidated assets—are
also subject to adjustments. Reported
average total consolidated assets for
purposes of the leverage ratio is
increased by the amount of the modified
CECL transitional amount, and
temporary difference DTAs are
decreased by the DTA transitional
amount as under the 2019 CECL rule.
The agencies received one comment
pertaining to the treatment of temporary
difference DTAs. This commenter
generally supported the approach for
calculating the DTA transitional
amount, but noted that not applying a
dynamic adjustment to the DTA
transitional amount during the first
eight quarters of the transition could
have a material impact on risk-weighted
assets for particularly large banking
organizations. Because revising the
calculation for DTAs in a dynamic
fashion, as suggested by commenters,
likely would introduce undue
complexity into the transition
calculation, the final rule retains the
calculation of the DTA transitional
amount in the interim final rule,
without revision.
Consistent with the interim final rule,
under the final rule, the modified CECL
and modified AACL transitional
amounts are calculated on a quarterly
basis during the first two years of the
transition period. An electing banking
organization reflects those modified
transitional amounts, which includes
100 percent of the day-one impact of
CECL plus a portion of the difference
between AACL reported in the most
recent regulatory report and AACL as of
the beginning of the fiscal year that the
banking organization adopts CECL, in
transitional amounts applied to
regulatory capital calculations. For the
reasons described above, an electing
banking organization would not apply
the transitional amounts in any quarter
in which the banking organization
would not report a positive modified
CECL transitional amount. After two
years, the cumulative transitional
amounts become fixed and are phased
out of regulatory capital
transitional amounts applied to
regulatory capital calculations. For the
reasons described above, an electing
banking organization would not apply
the transitional amounts in any quarter
in which the banking organization
would not report a positive modified
CECL transitional amount. After two
years, the cumulative transitional
amounts become fixed and are phased
out of regulatory capital. The phase out
of the transitional amounts from
regulatory capital occurs over the
subsequent three-year period: 75
percent are recognized in year three; 50
percent are recognized in year four; and
25 percent are recognized in year five.
Beginning in year six, the banking
organization will not be able to adjust
its regulatory capital by any of the
transitional amounts.
Some commenters requested that the
first two years of the transition be
applied on a permanent basis. While
this aspect of the transition is generally
based on the difference between lifetime
expected credit losses and incurred
credit losses, the agencies adopted the
interim final rule to provide burden
relief for operational challenges
resulting from the implementation of a
significant change in credit loss
accounting during a shock to the
economy caused by the spread of
COVID–19, not to permanently
recalibrate the capital rule. The agencies
intend to propose the final key features
of the Basel III reforms related to risk-
based capital requirements soon. As part
of that implementation, the agencies
intend generally to preserve the
aggregate level of loss absorbency in the
banking system throughout the
economic cycle and will consider the
effect of CECL in their analysis. The
agencies will also continue to monitor
the effect of CECL on capital ratios.
Finally, under the final rule, an
electing banking organization applies
the adjustments calculated above during
each quarter of the transition period for
purposes of calculating the banking
organization’s regulatory capital ratios
out the
economic cycle and will consider the
effect of CECL in their analysis. The
agencies will also continue to monitor
the effect of CECL on capital ratios.
Finally, under the final rule, an
electing banking organization applies
the adjustments calculated above during
each quarter of the transition period for
purposes of calculating the banking
organization’s regulatory capital ratios.
No adjustments are reflected in balance
sheet or income statement amounts. The
electing banking organization reflects
the transition adjustment to the extent
the banking organization has reflected
CECL in the Call Report or FR Y–9C, as
applicable, in that quarter. If a banking
organization chooses to revert to the
incurred loss methodology pursuant to
the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act) 10
in any quarter in 2020, the banking
organization would not apply any
transitional amounts in that quarter but
would be allowed to apply the
transitional amounts in subsequent
quarters when the banking organization
resumes use of CECL. However, a
banking organization that has elected
the transition, but subsequently elects to
not apply the transitional amounts, in
any quarter, would not receive any
extension of the five-year transition
period.
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11 The option to delay the use of CECL in
accordance with section 4014 of the CARES Act
also is available for other GAAP-based reporting.
12 A banking organization is an advanced
approaches banking organization if it (1) is a global
systemically important bank holding company, (2)
is a Category II banking organization, (3) has elected
to be an advanced approached banking
organization, (4) is a subsidiary of a company that
is an advanced approaches banking organization, or
ct
also is available for other GAAP-based reporting.
12 A banking organization is an advanced
approaches banking organization if it (1) is a global
systemically important bank holding company, (2)
is a Category II banking organization, (3) has elected
to be an advanced approached banking
organization, (4) is a subsidiary of a company that
is an advanced approaches banking organization, or
(5) has a subsidiary depository institution that is an
advanced approaches banking organization. See 12
CFR 3.100 (OCC); 12 CFR 217.100 (Board); 12 CFR
324.100 (FDIC).
13 See 12 CFR 3.173 (OCC); 12 CFR 217.173
(Board); 12 CFR 324.173 (FDIC).
14 See 12 U.S.C. 1831n(a)(2)(A).
TABLE 1—CECL TRANSITIONAL AMOUNTS TO APPLY TO REGULATORY CAPITAL COMPONENTS DURING THE FINAL THREE
YEARS OF THE 2020 CECL TRANSITION
Year 3
Year 4
Year 5
Increase retained earnings and average total consolidated assets by the following percent-
ages of the modified CECL transitional amount ......................................................................
75%
50%
25%
Decrease temporary difference DTAs by the following percentages of the DTA transitional
amount.
Decrease AACL by the following percentages of the modified AACL transitional amount.
C. 2020 CECL Adopters
Consistent with the interim final rule,
under the final rule, banking
organizations that are required to adopt
CECL under GAAP (as in effect January
1, 2020) in the 2020 calendar year are
eligible for the 2020 CECL transition
provision
ing percentages of the DTA transitional
amount.
Decrease AACL by the following percentages of the modified AACL transitional amount.
C. 2020 CECL Adopters
Consistent with the interim final rule,
under the final rule, banking
organizations that are required to adopt
CECL under GAAP (as in effect January
1, 2020) in the 2020 calendar year are
eligible for the 2020 CECL transition
provision. A banking organization that
is required to adopt CECL under GAAP
in the 2020 calendar year, but chooses
to delay use of CECL for regulatory
reporting in accordance with section
4014 of the CARES Act, is also eligible
for the 2020 CECL transition
provision.11
Many depository institution holding
companies that are Securities and
Exchange Commission (SEC) filers are
required to adopt CECL for financial
statement purposes under GAAP in the
2020 calendar year (in which case they
are eligible for the 2020 CECL transition
provision). Additionally, since issuing
the interim final rule, supervisory
experience has shown that depository
institution subsidiaries of holding
companies generally adopt CECL based
on when their holding companies are
required to adopt CECL. The agencies
received comments through the
supervisory process regarding CECL
transition implementation challenges
that can exist when the depository
institution subsidiary of a holding
company does not adopt CECL at the
same time as its holding company,
which would result in maintaining
separate processes for calculating loan
losses on the same exposure. However,
because these depository institution
subsidiaries are not required to adopt
CECL under GAAP during the 2020
calendar year, they would not have been
eligible to use the 2020 CECL transition
provision under the interim final rule
dopt CECL at the
same time as its holding company,
which would result in maintaining
separate processes for calculating loan
losses on the same exposure. However,
because these depository institution
subsidiaries are not required to adopt
CECL under GAAP during the 2020
calendar year, they would not have been
eligible to use the 2020 CECL transition
provision under the interim final rule.
Additionally, a banking organization
that is not required to adopt CECL under
GAAP in the 2020 calendar year, but
nonetheless chooses to early adopt
CECL in the 2020 calendar year would
not have been eligible to use the 2020
CECL transition provision under the
interim final rule. Due to the significant
differences between CECL and the
incurred loss methodology, the agencies
understand that these banking
organizations would have incurred
substantial time and cost prior to 2020
to implement CECL and it would be a
significant burden to subsequently
revert to the incurred loss methodology.
To address these implementation
challenges and facilitate more banking
organizations to better focus on
supporting lending to creditworthy
borrowers, the final rule modifies the
interim final rule. Specifically, the final
rule permits use of the 2020 CECL
transition provision by any banking
organization that adopts CECL during
the 2020 calendar year, including those
not required to adopt CECL under
GAAP in the 2020 calendar year and
those that adopt CECL in an interim
period in the 2020 calendar year. A
banking organization that initially
elected the three-year transition
provision under the 2019 CECL rule
earlier in 2020 because it was not
eligible to elect the 2020 CECL
transition provision under the interim
final rule at that time may change its
election to the 2020 CECL transition
provision in its Call Report or FR Y–9C
(as applicable) filed later in the 2020
calendar year
year. A
banking organization that initially
elected the three-year transition
provision under the 2019 CECL rule
earlier in 2020 because it was not
eligible to elect the 2020 CECL
transition provision under the interim
final rule at that time may change its
election to the 2020 CECL transition
provision in its Call Report or FR Y–9C
(as applicable) filed later in the 2020
calendar year. In all cases, an electing
banking organization must follow the
calculations for determining the
transitional amounts as described in the
capital rule.
D. Transitions Applicable to Advanced
Approaches Banking Organizations
Consistent with the interim final rule,
the final rule adjusts the transitional
amounts related to eligible credit
reserves for advanced approaches
banking organizations 12 that elect to use
the 2020 CECL transition provision. The
final rule also adjusts the transitional
amounts related to the supplementary
leverage ratio’s total exposure amount.
An advanced approaches banking
organization that elects the 2020 CECL
transition provision continues to be
required to disclose two sets of
regulatory capital ratios under the
capital rule: One set would reflect the
banking organization’s capital ratios
with the CECL transition provision and
the other set would reflect the banking
organization’s capital ratios on a fully
phased-in basis.13
E. Other Considerations
The agencies received a few
comments on topics not discussed in
the interim final rule. One commenter
requested that the FASB and the
agencies allow banking organizations of
all sizes the option to defer the
implementation of CECL until 2025,
given current economic uncertainties.
Other commenters requested that the
agencies study further the relationship
between regulatory capital and credit
loss allowances and whether the impact
of CECL on banking organizations’
regulatory capital should result in
permanent revisions to the capital rule
ing organizations of
all sizes the option to defer the
implementation of CECL until 2025,
given current economic uncertainties.
Other commenters requested that the
agencies study further the relationship
between regulatory capital and credit
loss allowances and whether the impact
of CECL on banking organizations’
regulatory capital should result in
permanent revisions to the capital rule.
One commenter requested that the
agencies increase the amount of ACL
that would be eligible to be added back
to tier 2 capital.
The agencies will continue to study
the need for further revisions to the
regulatory capital framework to account
for CECL and take warranted actions as
the agencies deem necessary. The
agencies will continue to use GAAP as
the basis for accounting principles
applicable to reports or statements
required to be filed with the agencies,
consistent with section 37 of the Federal
Deposition Insurance Act.14 The
agencies will continue to use the
supervisory process to examine credit
loss estimates and allowance balances of
banking organizations regardless of their
election to use CECL transition
provisions. In addition, the agencies
may assess the capital plans at electing
banking organizations for ensuring
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15 The Board extended the due date for the Y–14A
collection of supplemental CECL information from
April 6th until May 11th (due date of the March 31
FR Y–9C) and is including changes in the Y–14A
instructions to align with the changes outlined in
the interim final rule. These changes are effective
for the submission associated with the FR Y–14 as
of December 31, 2019
Rules and Regulations
15 The Board extended the due date for the Y–14A
collection of supplemental CECL information from
April 6th until May 11th (due date of the March 31
FR Y–9C) and is including changes in the Y–14A
instructions to align with the changes outlined in
the interim final rule. These changes are effective
for the submission associated with the FR Y–14 as
of December 31, 2019.
Under the Board’s December 2018 amendments to
its stress test rules, a banking organization that had
adopted CECL in 2020 was required to include the
impact of CECL into their stressed projections
beginning in the 2020 stress testing cycle. As a
result of the interim final rule, firms that have
already adopted CECL have the option to either
include the adjustments from the interim final rule
in their 2020 stress projections or delay doing so.
As noted in the 2020 CCAR summary instructions,
the Board will not issue supervisory findings on
banking organizations’ stressed estimates of
allowances under CECL until the 2022 CCAR cycle,
at the earliest.
sufficient capital at the expiration of
such transition periods.15
F. Technical Amendments to the Interim
Final Rule
The agencies are making technical,
non-substantive edits in the final rule to
correct typographical errors in the
interim final rule. Specifically, the
amendments correct and clarify certain
definitions and terminology used in the
2020 CECL transition provision and
remove extraneous language that was
inadvertently included in the interim
final rule.
IV. Impact Assessment
As discussed in the Supplementary
Information to the interim final rule,
CECL is expected to affect the timing
and magnitude of banking
organizations’ loss provisioning,
particularly around periods of economic
stress. As recently as late last year,
economic conditions appeared stable
and the introduction of CECL was
expected to have only a modest effect on
operations
. Impact Assessment
As discussed in the Supplementary
Information to the interim final rule,
CECL is expected to affect the timing
and magnitude of banking
organizations’ loss provisioning,
particularly around periods of economic
stress. As recently as late last year,
economic conditions appeared stable
and the introduction of CECL was
expected to have only a modest effect on
operations. However, the additional
uncertainty due to the introduction of a
new credit loss accounting standard in
a period of stress associated with
COVID–19 poses a unique and
unanticipated challenge to business
operations.
The agencies issued the interim final
rule to mitigate the extent to which
CECL implementation complicates
capital planning challenges posed by
the economic effects of the COVID–19
pandemic by making the regulatory
capital impact of near-term accounting
for credit losses under CECL through the
crisis roughly comparable to the
regulatory capital impact under the
incurred loss methodology. To do so,
the 2020 CECL transition provision
includes the entire day-one impact as
well as an estimate of the incremental
increase in credit loss allowances
attributable to CECL as compared to the
incurred loss methodology. With the
2020 CECL transition provision
provided by the interim final rule, as
clarified by the final rule, banking
organizations have time to adapt capital
planning under stress to the new credit
loss accounting standard, improving
their flexibility and enhancing their
ability to serve as a source of credit to
the U.S. economy.
The uniform 25 percent scaling factor
is only an approximation of the average
after-tax provision for credit losses
attributable to CECL, relative to the
incurred loss methodology, in a given
reporting quarter. Banking organizations
may realize effects that are higher or
lower than the amount calculated using
the scaling factor
ability to serve as a source of credit to
the U.S. economy.
The uniform 25 percent scaling factor
is only an approximation of the average
after-tax provision for credit losses
attributable to CECL, relative to the
incurred loss methodology, in a given
reporting quarter. Banking organizations
may realize effects that are higher or
lower than the amount calculated using
the scaling factor. Additionally, the
transition provision does not directly
address likely differences in the timing
of loss recognition under CECL and the
incurred loss methodology. To the
extent that allowances related to the
economic effects of the COVID–19
pandemic build sooner under CECL
than they would have under the
incurred loss methodology, the
transition provision provided in the
final rule will not fully offset the
regulatory capital impact of CECL.
However, there is a significant benefit to
operational simplicity from using a
single scalar for the quarterly
adjustments for all electing banking
organizations.
As discussed previously, any banking
organization that chooses to adopt, or is
required to adopt CECL during the 2020
calendar year, as well as any banking
organization that is part of a
consolidated group whose holding
company adopts CECL under GAAP
during the 2020 calendar year will be
covered by the final rule. However, the
final rule will only directly affect those
institutions that opt to utilize the 2020
CECL transition provision. The choice
to adopt the 2020 CECL transition
provision will depend on the
characteristics of each individual
institution, therefore the agencies do not
know how many institutions will
choose to do so.
As mentioned previously, under the
interim final rule and the final rule,
banking organizations that are required
to adopt CECL under GAAP (as in effect
January 1, 2020) in the 2020 calendar
year would be eligible for the 2020
CECL transition provision
nd on the
characteristics of each individual
institution, therefore the agencies do not
know how many institutions will
choose to do so.
As mentioned previously, under the
interim final rule and the final rule,
banking organizations that are required
to adopt CECL under GAAP (as in effect
January 1, 2020) in the 2020 calendar
year would be eligible for the 2020
CECL transition provision. Under the
final rule, the agencies are also
permitting use of the 2020 CECL
transition provision by any banking
organization that is part of a
consolidated group in which its holding
company is required under GAAP to
adopt CECL during the 2020 calendar
year. Also, the agencies are expanding
the scope of the 2020 CECL transition
provision to include any banking
organization that is not required to
adopt CECL under GAAP in the 2020
calendar year, but nonetheless chooses
to early adopt CECL in the 2020
calendar year, including a banking
organization that adopts CECL in an
interim period in the 2020 calendar
year. The agencies do not have
information necessary to estimate the
number of institutions that may choose
to adopt CECL in the 2020 calendar year
and may avail themselves of the 2020
CECL transition provision.
The final rule provides electing
banking organizations relief in response
to the additional operational challenges
and resource burden of implementing
CECL amid the uncertainty caused by
recent strains on the U.S. economy, so
that electing banking organizations may
better focus on supporting lending to
creditworthy households and
businesses, while maintaining the
quality of regulatory capital and
reducing the potential for competitive
inequities across banking organizations.
Banking organizations that are eligible
for, and opt to utilize the 2020 CECL
transition provision may incur some
regulatory costs associated with making
changes to their systems and processes.
V. Administrative Law Matters
A
households and
businesses, while maintaining the
quality of regulatory capital and
reducing the potential for competitive
inequities across banking organizations.
Banking organizations that are eligible
for, and opt to utilize the 2020 CECL
transition provision may incur some
regulatory costs associated with making
changes to their systems and processes.
V. Administrative Law Matters
A. Administrative Procedure Act
The agencies are issuing this final rule
without prior notice and the
opportunity for public comment and the
30-day delayed effective date ordinarily
prescribed by the Administrative
Procedure Act (APA). Pursuant to
section 553(b)(B) of the APA, general
notice and the opportunity for public
comment are not required with respect
to a rulemaking when an ‘‘agency for
good cause finds (and incorporates the
finding and a brief statement of reasons
therefor in the rules issued) that notice
and public procedure thereon are
impracticable, unnecessary, or contrary
to the public interest.’’
The agencies recognize that the public
interest is best served by implementing
the final rule as soon as possible. As
discussed above, recent events have
suddenly and significantly affected
global economic activity. In addition,
financial markets have experienced
significant volatility. The magnitude
and persistence of the overall effects on
the economy remain highly uncertain.
The 2019 CECL rule, as amended by
the interim final rule, was adopted by
the agencies to address concerns that
despite adequate capital planning,
uncertainty about the economic
environment at the time of CECL
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economy remain highly uncertain.
The 2019 CECL rule, as amended by
the interim final rule, was adopted by
the agencies to address concerns that
despite adequate capital planning,
uncertainty about the economic
environment at the time of CECL
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16 5 U.S.C. 801 et seq.
17 5 U.S.C. 801(a)(3).
18 5 U.S.C. 804(2).
19 See 85 FR 44361 (July 22, 2020).
20 A savings and loan holding company (SLHC)
must file one or more of the FR Y–9 series of reports
unless it is: (1) A grandfathered unitary SLHC with
primarily commercial assets and thrifts that make
up less than 5 percent of its consolidated assets; or
(2) a SLHC that primarily holds insurance-related
assets and does not otherwise submit financial
reports with the SEC pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934.
adoption could result in higher-than-
anticipated increases in credit loss
allowances. Because of recent economic
dislocations and disruptions in financial
markets, banking organizations may face
higher-than-anticipated increases in
credit loss allowances. The final rule is
intended to mitigate some of the
uncertainty that comes with the increase
in credit loss allowances during a
challenging economic environment by
temporarily limiting the approximate
effects of CECL in regulatory capital.
This will allow banking organizations to
better focus on supporting lending to
creditworthy households and
businesses.
The APA also requires a 30-day
delayed effective date, except for (1)
substantive rules which grant or
recognize an exemption or relieve a
restriction; (2) interpretative rules and
statements of policy; or (3) as otherwise
provided by the agency for good cause
capital.
This will allow banking organizations to
better focus on supporting lending to
creditworthy households and
businesses.
The APA also requires a 30-day
delayed effective date, except for (1)
substantive rules which grant or
recognize an exemption or relieve a
restriction; (2) interpretative rules and
statements of policy; or (3) as otherwise
provided by the agency for good cause.
Because the rule relieves a restriction,
the final rule is exempt from the APA’s
delayed effective date requirement.
Additionally, the agencies find good
cause to publish the final rule with an
immediate effective date for the same
reasons set forth above under the
discussion of section 553(b)(B) of the
APA.
B. Congressional Review Act
For purposes of Congressional Review
Act, the OMB makes a determination as
to whether a final rule constitutes a
‘‘major’’ rule.16 If a rule is deemed a
‘‘major rule’’ by the Office of
Management and Budget (OMB), the
Congressional Review Act generally
provides that the rule may not take
effect until at least 60 days following its
publication.17
The Congressional Review Act defines
a ‘‘major rule’’ as any rule that the
Administrator of the Office of
Information and Regulatory Affairs of
the OMB finds has resulted in or is
likely to result in (A) an annual effect
on the economy of $100,000,000 or
more; (B) a major increase in costs or
prices for consumers, individual
industries, Federal, State, or local
government agencies or geographic
regions, or (C) significant adverse effects
on competition, employment,
investment, productivity, innovation, or
on the ability of United States-based
enterprises to compete with foreign-
based enterprises in domestic and
export markets.18
For the same reasons set forth above,
the agencies are adopting the final rule
without the delayed effective date
generally prescribed under the
Congressional Review Act
ificant adverse effects
on competition, employment,
investment, productivity, innovation, or
on the ability of United States-based
enterprises to compete with foreign-
based enterprises in domestic and
export markets.18
For the same reasons set forth above,
the agencies are adopting the final rule
without the delayed effective date
generally prescribed under the
Congressional Review Act. The delayed
effective date required by the
Congressional Review Act does not
apply to any rule for which an agency
for good cause finds (and incorporates
the finding and a brief statement of
reasons therefor in the rule issued) that
notice and public procedure thereon are
impracticable, unnecessary, or contrary
to the public interest. In light of current
market uncertainty, the agencies have
determined that delaying the effective
date of the final rule would be contrary
to the public interest.
As required by the Congressional
Review Act, the agencies will submit
the final rule and other appropriate
reports to Congress and the Government
Accountability Office for review.
C. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501–3521) (PRA) states that
no agency may conduct or sponsor, nor
is the respondent required to respond
to, an information collection unless it
displays a currently valid OMB control
number. This final rule does not contain
any information collection
requirements. However, in connection
with the interim final rule, the Board
temporarily revised the Financial
Statements for Holding Companies (FR
Y–9 reports; OMB No. 7100–0128) and
the Capital Assessments and Stress
Testing Reports (FR Y–14A/Q/M; OMB
No. 7100–0341) and invited comment
on a proposal to extend those
collections of information for three
years, with revision. No comments were
received regarding this proposal under
the PRA
im final rule, the Board
temporarily revised the Financial
Statements for Holding Companies (FR
Y–9 reports; OMB No. 7100–0128) and
the Capital Assessments and Stress
Testing Reports (FR Y–14A/Q/M; OMB
No. 7100–0341) and invited comment
on a proposal to extend those
collections of information for three
years, with revision. No comments were
received regarding this proposal under
the PRA. The Board has now extended,
with revision, the FR Y–9 and FR Y–
14A/Q/M reports as proposed, except
for minor clarifications discussed below
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 (OCC OMB
Control No. 1557–0081; Board OMB
Control No. 7100–0036; and FDIC OMB
Control No. 3064–0052) and the FFIEC
101 (OCC OMB Control No. 1557–0239;
Board OMB Control No. 7100–0319;
FDIC OMB Control No. 3064–0159). The
final changes to the Call Reports, the
FFIEC 101 and their related instructions
are addressed in a separate Federal
Register notice.19
Current Actions
The Board has extended the FR Y–9C
and FR Y–14A/Q/M for three years,
with revision, as originally proposed,
except for minor clarifications to the
instructions to the reports to accurately
reflect the CECL transition provision as
modified by this final rule. In addition
to the specific changes mentioned in the
interim final rule, the final rule expands
eligibility for the new transition to
banking organizations that voluntarily
early adopt CECL in the 2020 calendar
year. The final rule also includes minor
adjustments to clarify calculation of the
transition provision
ately
reflect the CECL transition provision as
modified by this final rule. In addition
to the specific changes mentioned in the
interim final rule, the final rule expands
eligibility for the new transition to
banking organizations that voluntarily
early adopt CECL in the 2020 calendar
year. The final rule also includes minor
adjustments to clarify calculation of the
transition provision. Specifically, the FR
Y–9C instructions would be clarified to
note that an electing banking
organization that opted to apply the
transition in the first quarter in which
it was eligible is not required to apply
the transition in any quarter in which it
would not reflect a positive modified
CECL transitional amount (that could
result in negative retained earnings).
Also, the FR Y–9C instructions would
be clarified to note that the day-one
transitional amounts (CECL transitional
amount, AACL transitional amount, and
DTA transitional amount) may be
calculated as a positive or negative
number. All of the updates to the FR
Y–9C and FR Y–14A/Q/M noted in the
interim and final rule result in a zero
estimated net change in hourly burden.
Revision, With Extension, of the
Following Information Collections
(1) Report Title: Financial Statements
for Holding Companies.
Agency Form Number: FR Y–9C, FR
Y–9LP, FR Y–9SP, FR Y–9ES, and FR
Y–9CS.
OMB Control Number: 7100–0128.
Effective Date: September 30, 2020
Frequency: Quarterly, semiannually,
and annually.
Respondents: Bank holding
companies, savings and loan holding
companies,20 securities holding
companies, and U.S. intermediate
holding companies (collectively, HCs)
Statements
for Holding Companies.
Agency Form Number: FR Y–9C, FR
Y–9LP, FR Y–9SP, FR Y–9ES, and FR
Y–9CS.
OMB Control Number: 7100–0128.
Effective Date: September 30, 2020
Frequency: Quarterly, semiannually,
and annually.
Respondents: Bank holding
companies, savings and loan holding
companies,20 securities holding
companies, and U.S. intermediate
holding companies (collectively, HCs).
Estimated Number of Respondents:
FR Y–9C (non-advanced approaches
community bank leverage ratio (CBLR)
HCs with less than $5 billion in total
assets): 71; FR Y–9C (non-advanced
approaches CBLR HCs with $5 billion or
more in total assets): 35; FR Y–9C (non-
advanced approaches, non CBLR, HCs
with less than $5 billion in total assets):
84; FR Y–9C (non-advanced approaches,
non CBLR HCs, with $5 billion or more
in total assets): 154; FR Y–9C (advanced
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21 The Call Reports consist of the Consolidated
Reports of Condition and Income for a Bank with
Domestic Offices Only and Total Assets Less Than
$5 Billion (FFIEC 051), the Consolidated Reports of
Condition and Income for a Bank with Domestic
Offices Only (FFIEC 041) and the Consolidated
Reports of Condition and Income for a Bank with
Domestic and Foreign Offices (FFIEC 031).
22 Under certain circumstances described in the
FR Y–9C’s General Instructions, HCs with assets
under $3 billion may be required to file the FR Y–
9C.
23 A top-tier HC may submit a separate FR Y–9LP
on behalf of each of its lower-tier HCs.
approaches HCs): 19; FR Y–9LP: 434; FR
Y–9SP: 3,960; FR Y–9ES: 83; FR Y–9CS:
236
and Income for a Bank with
Domestic and Foreign Offices (FFIEC 031).
22 Under certain circumstances described in the
FR Y–9C’s General Instructions, HCs with assets
under $3 billion may be required to file the FR Y–
9C.
23 A top-tier HC may submit a separate FR Y–9LP
on behalf of each of its lower-tier HCs.
approaches HCs): 19; FR Y–9LP: 434; FR
Y–9SP: 3,960; FR Y–9ES: 83; FR Y–9CS:
236.
Estimated average hours per response:
Reporting
FR Y–9C (non-advanced approaches
CBLR HCs with less than $5 billion in
total assets): 29.17 hours; FR Y–9C (non-
advanced approaches CBLR HCs with
$5 billion or more in total assets): 35.14;
FR Y–9C (non-advanced approaches,
non CBLR HCs, with less than $5 billion
in total assets): 41.01; FR Y–9C (non-
advanced approaches, non CBLR, HCs
with $5 billion or more in total assets):
46.98 hours; FR Y–9C (advanced
approaches HCs): 48.80 hours; FR
Y–9LP: 5.27 hours; FR Y–9SP: 5.40
hours; FR Y–9ES: 0.50 hours; FR Y–9CS:
0.50 hours.
Recordkeeping
FR Y–9C (non-advanced approaches
HCs with less than $5 billion in total
assets), FR Y–9C (non-advanced
approaches HCs with $5 billion or more
in total assets), FR Y–9C (advanced
approaches HCs), and FR Y–9LP: 1.00
hour; FR Y–9SP, FR Y–9ES, and FR
Y–9CS: 0.50 hours.
Estimated annual burden hours:
Reporting
FR Y–9C (non-advanced approaches
CBLR HCs with less than $5 billion in
total assets): 8,284 hours; FR Y–9C (non-
advanced approaches CBLR HCs with
$5 billion or more in total assets): 4,920;
FR Y–9C (non-advanced approaches
non CBLR HCs with less than $5 billion
in total assets): 13,779; FR Y–9C (non-
advanced approaches non CBLR HCs
with $5 billion or more in total assets):
28,940 hours; FR Y–9C (advanced
approaches HCs): 3,709 hours; FR
Y–9LP: 9,149 hours; FR Y–9SP: 42,768
hours; FR Y–9ES: 42 hours; FR Y–9CS:
472 hours.
Recordkeeping
FR Y–9C: 1,452 hours; FR Y–9LP:
1,736 hours; FR Y–9SP: 3,960 hours; FR
Y–9ES: 42 hours; FR Y–9CS: 472 hours
n
in total assets): 13,779; FR Y–9C (non-
advanced approaches non CBLR HCs
with $5 billion or more in total assets):
28,940 hours; FR Y–9C (advanced
approaches HCs): 3,709 hours; FR
Y–9LP: 9,149 hours; FR Y–9SP: 42,768
hours; FR Y–9ES: 42 hours; FR Y–9CS:
472 hours.
Recordkeeping
FR Y–9C: 1,452 hours; FR Y–9LP:
1,736 hours; FR Y–9SP: 3,960 hours; FR
Y–9ES: 42 hours; FR Y–9CS: 472 hours.
General description of report:
The FR Y–9C consists of standardized
financial statements similar to the Call
Reports filed by banks and savings
associations.21 The FR Y–9C collects
consolidated data from HCs and is filed
quarterly by top-tier HCs with total
consolidated assets of $3 billion or
more.22
The FR Y–9LP, which collects parent
company only financial data, must be
submitted by each HC that files the FR
Y–9C, as well as by each of its
subsidiary HCs.23 The report consists of
standardized financial statements.
The FR Y–9SP is a parent company
only financial statement filed
semiannually by HCs with total
consolidated assets of less than $3
billion. In a banking organization with
total consolidated assets of less than $3
billion that has tiered HCs, each HC in
the organization must submit, or have
the top-tier HC submit on its behalf, a
separate FR Y–9SP. This report is
designed to obtain basic balance sheet
and income data for the parent
company, and data on its intangible
assets and intercompany transactions.
The FR Y–9ES is filed annually by
each employee stock ownership plan
(ESOP) that is also an HC. The report
collects financial data on the ESOP’s
benefit plan activities. The FR Y–9ES
consists of four schedules: A Statement
of Changes in Net Assets Available for
Benefits, a Statement of Net Assets
Available for Benefits, Memoranda, and
Notes to the Financial Statements.
The FR Y–9CS is a free-form
supplemental report that the Board may
utilize to collect critical additional data
deemed to be needed in an expedited
manner from HCs on a voluntary basis
ies. The FR Y–9ES
consists of four schedules: A Statement
of Changes in Net Assets Available for
Benefits, a Statement of Net Assets
Available for Benefits, Memoranda, and
Notes to the Financial Statements.
The FR Y–9CS is a free-form
supplemental report that the Board may
utilize to collect critical additional data
deemed to be needed in an expedited
manner from HCs on a voluntary basis.
The data are used to assess and monitor
emerging issues related to HCs, and the
report is intended to supplement the
other FR Y–9 reports. The data items
included on the FR Y–9CS may change
as needed.
Legal authorization and
confidentiality: The Board has the
authority to impose the reporting and
recordkeeping requirements associated
with the FR Y–9 family of reports on
bank holding companies pursuant to
section 5 of the Bank Holding Company
Act of 1956 (BHC Act) (12 U.S.C. 1844);
on savings and loan holding companies
pursuant to section 10(b)(2) and (3) of
the Home Owners’ Loan Act (12 U.S.C.
1467a(b)(2) and (3)), as amended by
sections 369(8) and 604(h)(2) of the
Dodd-Frank Wall Street and Consumer
Protection Act (Dodd-Frank Act); on
U.S. intermediate holding companies
pursuant to section 5 of the BHC Act (12
U.S.C 1844), as well as pursuant to
sections 102(a)(1) and 165 of the Dodd-
Frank Act (12 U.S.C. 511(a)(1) and
5365); and on securities holding
companies pursuant to section 618 of
the Dodd-Frank Act (12 U.S.C.
1850a(c)(1)(A)). The obligation to
submit the FR Y–9 series of reports, and
the recordkeeping requirements set forth
in the respective instructions to each
report, are mandatory, except for the FR
Y–9CS, which is voluntary.
With respect to the FR Y–9C report,
Schedule HI’s data item 7(g) ‘‘FDIC
deposit insurance assessments,’’
Schedule HC P’s data item 7(a)
‘‘Representation and warranty reserves
for 1–4 family residential mortgage
loans sold to U.S
reports, and
the recordkeeping requirements set forth
in the respective instructions to each
report, are mandatory, except for the FR
Y–9CS, which is voluntary.
With respect to the FR Y–9C report,
Schedule HI’s data item 7(g) ‘‘FDIC
deposit insurance assessments,’’
Schedule HC P’s data item 7(a)
‘‘Representation and warranty reserves
for 1–4 family residential mortgage
loans sold to U.S. government agencies
and government sponsored agencies,’’
and Schedule HC P’s data item 7(b)
‘‘Representation and warranty reserves
for 1–4 family residential mortgage
loans sold to other parties’’ are
considered confidential commercial and
financial information. Such treatment is
appropriate under exemption 4 of the
Freedom of Information Act (FOIA) (5
U.S.C. 552(b)(4)) because these data
items reflect commercial and financial
information that is both customarily and
actually treated as private by the
submitter, and which the Board has
previously assured submitters will be
treated as confidential. It also appears
that disclosing these data items may
reveal confidential examination and
supervisory information, and in such
instances, this information would also
be withheld pursuant to exemption 8 of
the FOIA (5 U.S.C. 552(b)(8)), which
protects information related to the
supervision or examination of a
regulated financial institution.
In addition, for both the FR Y–9C
report, Schedule HC’s memorandum
item 2.b. and the FR Y–9SP report,
Schedule SC’s memorandum item 2.b.,
the name and email address of the
external auditing firm’s engagement
partner, is considered confidential
commercial information and protected
by exemption 4 of the FOIA (5 U.S.C.
552(b)(4)) if the identity of the
engagement partner is treated as private
information by HCs. The Board has
assured respondents that this
information will be treated as
confidential since the collection of this
data item was proposed in 2004
external auditing firm’s engagement
partner, is considered confidential
commercial information and protected
by exemption 4 of the FOIA (5 U.S.C.
552(b)(4)) if the identity of the
engagement partner is treated as private
information by HCs. The Board has
assured respondents that this
information will be treated as
confidential since the collection of this
data item was proposed in 2004.
Additionally, items on the FR Y–9C,
Schedule HC–C for loans modified
under Section 4013, data items
Memorandum items 16.a, ‘‘Number of
Section 4013 loans outstanding’’; and
Memorandum items 16.b, ‘‘Outstanding
balance of Section 4013 loans’’ are
considered confidential. While the
Board generally makes institution-level
FR Y–9C report data publicly available,
the Board is collecting Section 4013
loan information as part of condition
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24 SLHCs with $100 billion or more in total
consolidated assets become members of the FR Y–
14Q and FR Y–14M panels effective June 30, 2020,
and the FR Y–14A panel effective December 31,
2020. See 84 FR 59032 (Nov. 1, 2019).
25 The estimated number of respondents for the
FR Y–14M is lower than for the FR Y–14Q and FR
Y–14A because, in recent years, certain respondents
to the FR Y–14A and FR Y–14Q have not met the
materiality thresholds to report the FR Y–14M due
to their lack of mortgage and credit activities. The
Board expects this situation to continue for the
foreseeable future.
26 In certain circumstances, a BHC or IHC may be
required to re-submit its capital plan. See 12 CFR
225.8(e)(4). Firms that must re-submit their capital
plan generally also must provide a revised FR
Y–14A in connection with their resubmission
to report the FR Y–14M due
to their lack of mortgage and credit activities. The
Board expects this situation to continue for the
foreseeable future.
26 In certain circumstances, a BHC or IHC may be
required to re-submit its capital plan. See 12 CFR
225.8(e)(4). Firms that must re-submit their capital
plan generally also must provide a revised FR
Y–14A in connection with their resubmission.
27 On October 10, 2019, the Board issued a final
rule that eliminated the requirement for firms
subject to Category IV standards to conduct and
publicly disclose the results of a company-run
stress test. See 84 FR 59032 (Nov. 1, 2019). That
final rule maintained the existing FR Y–14
substantive reporting requirements for these firms
in order to provide the Board with the data it needs
to conduct supervisory stress testing and inform the
Board’s ongoing monitoring and supervision of its
supervised firms. However, as noted in the final
rule, the Board intends to provide greater flexibility
to banking organizations subject to Category IV
standards in developing their annual capital plans
and consider further change to the FR Y–14 forms
as part of a separate proposal. See 84 FR 59032,
59063 (Nov. 1, 2019).
reports for the impacted HCs and the
Board considers disclosure of these
items at the HC level would not be in
the public interest. Such information is
permitted to be collected on a
confidential basis, consistent with 5
U.S.C. 552(b)(8). In addition, holding
companies may be reluctant to offer
modifications under Section 4013 if
information on these modifications
made by each holding company is
publicly available, as analysts,
investors, and other users of public FR
Y–9C report information may penalize
an institution for using the relief
provided by the CARES Act. The Board
may disclose Section 4013 loan data on
an aggregated basis, consistent with
confidentiality
nt to offer
modifications under Section 4013 if
information on these modifications
made by each holding company is
publicly available, as analysts,
investors, and other users of public FR
Y–9C report information may penalize
an institution for using the relief
provided by the CARES Act. The Board
may disclose Section 4013 loan data on
an aggregated basis, consistent with
confidentiality.
Aside from the data items described
above, the remaining data items on the
FR Y–9C report and the FR–Y 9SP
report are generally not accorded
confidential treatment. The data items
collected on FR Y–9LP, FR Y–9ES, and
FR Y–9CS reports, are also generally not
accorded confidential treatment. As
provided in the Board’s Rules Regarding
Availability of Information (12 CFR part
261), however, a respondent may
request confidential treatment for any
data items the respondent believes
should be withheld pursuant to a FOIA
exemption. The Board will review any
such request to determine if confidential
treatment is appropriate, and will
inform the respondent if the request for
confidential treatment has been denied.
To the extent the instructions to the
FR Y–9C, FR Y–9LP, FR Y–9SP, and FR
Y–9ES reports each respectively direct
the financial institution to retain the
work papers and related materials used
in preparation of each report, such
material would only be obtained by the
Board as part of the examination or
supervision of the financial institution.
Accordingly, such information is
considered confidential pursuant to
exemption 8 of the FOIA (5 U.S.C.
552(b)(8)). In addition, the financial
institution’s work papers and related
materials may also be protected by
exemption 4 of the FOIA, to the extent
such financial information is treated as
confidential by the respondent (5 U.S.C.
552(b)(4)).
supervision of the financial institution.
Accordingly, such information is
considered confidential pursuant to
exemption 8 of the FOIA (5 U.S.C.
552(b)(8)). In addition, the financial
institution’s work papers and related
materials may also be protected by
exemption 4 of the FOIA, to the extent
such financial information is treated as
confidential by the respondent (5 U.S.C.
552(b)(4)).
(2) Report title: Capital Assessments
and Stress Testing Reports.
Agency Form Number: FR Y–14A/
Q/M.
OMB Control Number: 7100–0341.
Frequency: Annually, quarterly, and
monthly.
Respondents: These collections of
information are applicable to BHCs, U.S.
intermediate holding companies (IHCs),
and savings and loan holding
companies (SLHCs) 24 (collectively,
‘‘holding companies’’) with $100 billion
or more in total consolidated assets, as
based on: (i) The average of the firm’s
total consolidated assets in the four
most recent quarters as reported
quarterly on the firm’s Consolidated
Financial Statements for Holding
Companies (FR Y–9C); or (ii) if the firm
has not filed an FR Y–9C for each of the
most recent four quarters, then the
average of the firm’s total consolidated
assets in the most recent consecutive
quarters as reported quarterly on the
firm’s FR
Y–9Cs. Reporting is required as of the
first day of the quarter immediately
following the quarter in which the
respondent meets this asset threshold,
unless otherwise directed by the Board.
Estimated number of respondents: FR
Y–14A/Q: 36; FR Y–14M: 34.25
Estimated average hours per response:
FR Y–14A: 1,085 hours; FR Y–14Q:
2,142 hours; FR Y–14M: 1,072 hours; FR
Y–14 On-going Automation Revisions:
480 hours; FR Y–14 Attestation On-
going Attestation: 2,560 hours.
Estimated annual burden hours: FR
Y–14A: 39,060 hours; FR Y–14Q:
308,448 hours; FR Y–14M: 437,376
hours; FR Y–14 On-going Automation
Revisions: 17,280 hours; FR Y–14
Attestation On-going Attestation: 33,280
hours
FR Y–14A: 1,085 hours; FR Y–14Q:
2,142 hours; FR Y–14M: 1,072 hours; FR
Y–14 On-going Automation Revisions:
480 hours; FR Y–14 Attestation On-
going Attestation: 2,560 hours.
Estimated annual burden hours: FR
Y–14A: 39,060 hours; FR Y–14Q:
308,448 hours; FR Y–14M: 437,376
hours; FR Y–14 On-going Automation
Revisions: 17,280 hours; FR Y–14
Attestation On-going Attestation: 33,280
hours.
General description of report: This
family of information collections is
composed of the following three reports:
The annual 26 FR Y–14A collects
quantitative projections of balance
sheet, income, losses, and capital across
a range of macroeconomic scenarios and
qualitative information on
methodologies used to develop internal
projections of capital across scenarios.27
The quarterly FR Y–14Q collects
granular data on various asset classes,
including loans, securities, trading
positions, and pre-provision net revenue
for the reporting period.
The monthly FR Y–14M is comprised
of three retail portfolio- and loan-level
schedules, and one detailed address-
matching schedule to supplement two
of the portfolio and loan-level
schedules.
The data collected through the FR Y–
14A/Q/M reports provide the Board
with the information needed to help
ensure that large firms have strong,
firm-wide risk measurement and
management processes supporting their
internal assessments of capital adequacy
and that their capital resources are
sufficient given their business focus,
activities, and resulting risk exposures.
The reports are used to support the
Board’s annual Comprehensive Capital
Analysis and Review (CCAR) and Dodd-
Frank Act Stress Test (DFAST)
exercises, which complement other
Board supervisory efforts aimed at
enhancing the continued viability of
large firms, including continuous
monitoring of firms’ planning and
management of liquidity and funding
resources, as well as regular assessments
of credit, market and operational risks,
and associated risk management
practices
d Review (CCAR) and Dodd-
Frank Act Stress Test (DFAST)
exercises, which complement other
Board supervisory efforts aimed at
enhancing the continued viability of
large firms, including continuous
monitoring of firms’ planning and
management of liquidity and funding
resources, as well as regular assessments
of credit, market and operational risks,
and associated risk management
practices. Information gathered in this
data collection is also used in the
supervision and regulation of
respondent financial institutions.
Compliance with the information
collection is mandatory.
Legal authorization and
confidentiality: The Board has the
authority to require BHCs to file the FR
Y–14 reports pursuant to section 5(c) of
the BHC Act, 12 U.S.C. 1844(c), and
pursuant to section 165(i) of the Dodd-
Frank Act, 12 U.S.C. 5365(i). The Board
has authority to require SLHCs to file
the FR Y–14 reports pursuant to section
10(b) of the Home Owners’ Loan Act (12
U.S.C. 1467a(b)). Lastly, the Board has
authority to require U.S. IHCs of FBOs
to file the FR Y–14 reports pursuant to
section 5 of the BHC Act, as well as
pursuant to sections 102(a)(1) and 165
of the Dodd-Frank Act, 12 U.S.C.
5311(a)(1) and 5365. In addition, section
401(g) of the Economic Growth,
Regulatory Relief, and Consumer
Protection Act (EGRRCPA), 12 U.S.C.
5365 note, provides that the Board has
the authority to establish enhanced
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Dodd-Frank Act, 12 U.S.C.
5311(a)(1) and 5365. In addition, section
401(g) of the Economic Growth,
Regulatory Relief, and Consumer
Protection Act (EGRRCPA), 12 U.S.C.
5365 note, provides that the Board has
the authority to establish enhanced
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28 The Board’s Final Rule referenced in section
401(g) of EGRRCPA specifically stated that the
Board would require IHCs to file the FR Y–14
reports. See 79 FR 17240, 17304 (Mar. 27, 2014).
29 5 U.S.C. 601 et seq.
30 Under regulations issued by the Small Business
Administration, a small entity includes a depository
institution, bank holding company, or savings and
loan holding company with total assets of $600
million or less and trust companies with total assets
of $41.5 million or less. See 13 CFR 121.201.
31 12 U.S.C. 4802(a).
32 12 U.S.C. 4802.
33 Public Law 106–102, section 722, 113 Stat.
1338, 1471 (1999).
prudential standards for foreign banking
organizations with total consolidated
assets of $100 billion or more, and
clarifies that nothing in section 401
‘‘shall be construed to affect the legal
effect of the final rule of the Board. . .
entitled ‘Enhanced Prudential Standard
for [BHCs] and Foreign Banking
Organizations’ (79 FR 17240 (March 27,
2014)), as applied to foreign banking
organizations with total consolidated
assets equal to or greater than $100
million.’’ 28 The FR Y–14 reports are
mandatory. The information collected in
the FR Y–14 reports is collected as part
of the Board’s supervisory process, and
therefore, such information is afforded
confidential treatment pursuant to
exemption 8 of the Freedom of
Information Act (FOIA), 5 U.S.C.
552(b)(8)
banking
organizations with total consolidated
assets equal to or greater than $100
million.’’ 28 The FR Y–14 reports are
mandatory. The information collected in
the FR Y–14 reports is collected as part
of the Board’s supervisory process, and
therefore, such information is afforded
confidential treatment pursuant to
exemption 8 of the Freedom of
Information Act (FOIA), 5 U.S.C.
552(b)(8). In addition, confidential
commercial or financial information,
which a submitter actually and
customarily treats as private, and which
has been provided pursuant to an
express assurance of confidentiality by
the Board, is considered exempt from
disclosure under exemption 4 of the
FOIA, 5 U.S.C. 552(b)(4).
D. Regulatory Flexibility Act
The Regulatory Flexibility Act
(RFA) 29 requires an agency to consider
whether the rules it proposes will have
a significant economic impact on a
substantial number of small entities.30
The RFA applies only to rules for which
an agency publishes a general notice of
proposed rulemaking pursuant to 5
U.S.C. 553(b). Since the agencies were
not required to issue a general notice of
proposed rulemaking associated with
this final rule, no RFA is required.
Accordingly, the agencies have
concluded that the RFA’s requirements
relating to initial and final regulatory
flexibility analysis do not apply.
E. Riegle Community Development and
Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the
Riegle Community Development and
Regulatory Improvement Act
(RCDRIA),31 in determining the effective
date and administrative compliance
requirements for new regulations that
impose additional reporting, disclosure,
or other requirements on insured
depository institutions (IDIs), each
Federal banking agency must consider,
consistent with the principle of safety
and soundness and the public interest,
any administrative burdens that such
regulations would place on depository
institutions, including small depository
institutions, and customers of
depository i
t
impose additional reporting, disclosure,
or other requirements on insured
depository institutions (IDIs), each
Federal banking agency must consider,
consistent with the principle of safety
and soundness and the public interest,
any administrative burdens that such
regulations would place on depository
institutions, including small depository
institutions, and customers of
depository institutions, as well as the
benefits of such regulations. In addition,
section 302(b) of RCDRIA requires new
regulations and amendments to
regulations that impose additional
reporting, disclosures, or other new
requirements on IDIs generally to take
effect on the first day of a calendar
quarter that begins on or after the date
on which the regulations are published
in final form, with certain exceptions,
including for good cause.32 The
agencies have determined that the final
rule does not impose additional
reporting, disclosure, or other
requirements on IDIs; therefore, the
requirements of the RCDRIA do not
apply.
F. Plain Language
Section 722 of the Gramm-Leach-
Bliley Act 33 requires the Federal
banking agencies to use ‘‘plain
language’’ in all proposed and final
rules published after January 1, 2000. In
light of this requirement, the agencies
have sought to present the final rule in
a simple and straightforward manner.
G. Unfunded Mandates
As a general matter, the Unfunded
Mandates Act of 1995 (UMRA), 2 U.S.C.
1531 et seq., requires the preparation of
a budgetary impact statement before
promulgating a rule that includes a
Federal mandate that may result in the
expenditure by State, local, and tribal
governments, in the aggregate, or by the
private sector, of $100 million or more
in any one year. However, the UMRA
does not apply to final rules for which
a general notice of proposed rulemaking
was not published. See 2 U.S.C. 1532(a).
Since there was no general notice of
proposed rulemaking, the OCC has not
prepared an economic analysis of the
final rule under the UMRA
ocal, and tribal
governments, in the aggregate, or by the
private sector, of $100 million or more
in any one year. However, the UMRA
does not apply to final rules for which
a general notice of proposed rulemaking
was not published. See 2 U.S.C. 1532(a).
Since there was no general notice of
proposed rulemaking, the OCC has not
prepared an economic analysis of the
final rule under the UMRA.
List of Subjects
12 CFR Part 3
Administrative practice and
procedure, Capital, National banks,
Risk.
12 CFR Part 217
Administrative practice and
procedure, Banks, Banking, Capital,
Federal Reserve System, Holding
companies, Reporting and
recordkeeping requirements, Risk,
Securities.
12 CFR Part 324
Administrative practice and
procedure, Banks, Banking, Reporting
and recordkeeping requirements,
Savings associations, State non-member
banks.
Office of the Comptroller of the
Currency
12 CFR Chapter I
Authority and Issuance
■For the reasons set forth in the
preamble, the interim final rule
amending chapter I of title 12 of the
Code of Federal Regulations, which was
published at 85 FR 17723 on March 31,
2020, and amended at 85 FR 29839 on
May 19, 2020, is adopted as final with
the following changes:
PART 3—CAPITAL ADEQUACY
STANDARDS
■1. The authority citation for part 3
continues to read as follows:
Authority: 12 U.S.C. 93a, 161, 1462, 1462a,
1463, 1464, 1818, 1828(n), 1828 note, 1831n
note, 1835, 3907, 3909, 5412(b)(2)(B), and
Pub. L. 116–136, 134 Stat. 281.
Subpart G—Transition Provisions
■2. Revise § 3.301 to read as follows:
§ 3.301
Current Expected Credit Losses
(CECL) transition.
3—CAPITAL ADEQUACY
STANDARDS
■1. The authority citation for part 3
continues to read as follows:
Authority: 12 U.S.C. 93a, 161, 1462, 1462a,
1463, 1464, 1818, 1828(n), 1828 note, 1831n
note, 1835, 3907, 3909, 5412(b)(2)(B), and
Pub. L. 116–136, 134 Stat. 281.
Subpart G—Transition Provisions
■2. Revise § 3.301 to read as follows:
§ 3.301
Current Expected Credit Losses
(CECL) transition.
(a) CECL transition provision. (1)
Except as provided in paragraph (d) of
this section, a national bank or Federal
savings organization may elect to use a
CECL transition provision pursuant to
this section only if the national bank or
Federal savings association records a
reduction in retained earnings due to
the adoption of CECL as of the
beginning of the fiscal year in which the
national bank or Federal savings
association adopts CECL.
(2) Except as provided in paragraph
(d) of this section, a national bank or
Federal savings association that elects to
use the CECL transition provision must
elect to use the CECL transition
provision in the first Call Report that
includes CECL filed by the national
bank or Federal savings association after
it adopts CECL.
(3) A national bank or Federal savings
association that does not elect to use the
CECL transition provision as of the first
Call Report that includes CECL filed as
described in paragraph (a)(2) of this
section may not elect to use the CECL
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transition provision in subsequent
reporting periods.
CECL filed as
described in paragraph (a)(2) of this
section may not elect to use the CECL
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transition provision in subsequent
reporting periods.
(b) Definitions. For purposes of this
section, the following definitions apply:
(1) Transition period means the three-
year period beginning the first day of
the fiscal year in which a national bank
or Federal savings association adopts
CECL and reflects CECL in its first Call
Report filed after that date; or, for the
2020 CECL transition provision under
paragraph (d) of this section, the five-
year period beginning on the earlier of
the date a national bank or Federal
savings association was required to
adopt CECL for accounting purposes
under GAAP (as in effect January 1,
2020), or the first day of the fiscal year
that begins during the 2020 calendar
year in which the national bank or
Federal savings association files
regulatory reports that include CECL.
(2) CECL transitional amount means
the difference, net of any DTAs, in the
amount of a national bank’s or Federal
savings association’s retained earnings
as of the beginning of the fiscal year in
which the national bank or Federal
savings association adopts CECL from
the amount of the national bank’s or
Federal savings association’s retained
earnings as of the closing of the fiscal
year-end immediately prior to the
national bank’s or Federal savings
association’s adoption of CECL.
bank’s or Federal
savings association’s retained earnings
as of the beginning of the fiscal year in
which the national bank or Federal
savings association adopts CECL from
the amount of the national bank’s or
Federal savings association’s retained
earnings as of the closing of the fiscal
year-end immediately prior to the
national bank’s or Federal savings
association’s adoption of CECL.
(3) DTA transitional amount means
the difference in the amount of a
national bank’s or Federal savings
association’s DTAs arising from
temporary differences as of the
beginning of the fiscal year in which the
national bank or Federal savings
association adopts CECL from the
amount of the national bank’s or Federal
savings association’s DTAs arising from
temporary differences as of the closing
of the fiscal year-end immediately prior
to the national bank’s or Federal savings
association’s adoption of CECL.
(4) AACL transitional amount means
the difference in the amount of a
national bank’s or Federal savings
association’s AACL as of the beginning
of the fiscal year in which the national
bank or Federal savings association
adopts CECL and the amount of the
national bank’s or Federal savings
association’s ALLL as of the closing of
the fiscal year-end immediately prior to
the national bank’s or Federal savings
association’s adoption of CECL.
(5) Eligible credit reserves transitional
amount means the difference in the
amount of a national bank’s or Federal
savings association’s eligible credit
reserves as of the beginning of the fiscal
year in which the national bank or
Federal savings association adopts CECL
from the amount of the national bank’s
or Federal savings association’s eligible
credit reserves as of the closing of the
fiscal year-end immediately prior to the
national bank’s or Federal savings
association’s adoption of CECL.
(c) Calculation of the three-year CECL
transition provision. (1) For purposes of
the election described in paragraph
or
Federal savings association adopts CECL
from the amount of the national bank’s
or Federal savings association’s eligible
credit reserves as of the closing of the
fiscal year-end immediately prior to the
national bank’s or Federal savings
association’s adoption of CECL.
(c) Calculation of the three-year CECL
transition provision. (1) For purposes of
the election described in paragraph
(a)(1) of this section and except as
provided in paragraph (d) of this
section, a national bank or Federal
savings association must make the
following adjustments in its calculation
of regulatory capital ratios:
(i) Increase retained earnings by
seventy-five percent of its CECL
transitional amount during the first year
of the transition period, increase
retained earnings by fifty percent of its
CECL transitional amount during the
second year of the transition period, and
increase retained earnings by twenty-
five percent of its CECL transitional
amount during the third year of the
transition period;
(ii) Decrease amounts of DTAs arising
from temporary differences by seventy-
five percent of its DTA transitional
amount during the first year of the
transition period, decrease amounts of
DTAs arising from temporary
differences by fifty percent of its DTA
transitional amount during the second
year of the transition period, and
decrease amounts of DTAs arising from
temporary differences by twenty-five
percent of its DTA transitional amount
during the third year of the transition
period;
(iii) Decrease amounts of AACL by
seventy-five percent of its AACL
transitional amount during the first year
of the transition period, decrease
amounts of AACL by fifty percent of its
AACL transitional amount during the
second year of the transition period, and
decrease amounts of AACL by twenty-
five percent of its AACL transitional
amount during the third year of the
transition period; and
Decrease amounts of AACL by
seventy-five percent of its AACL
transitional amount during the first year
of the transition period, decrease
amounts of AACL by fifty percent of its
AACL transitional amount during the
second year of the transition period, and
decrease amounts of AACL by twenty-
five percent of its AACL transitional
amount during the third year of the
transition period; and
(iv) Increase average total
consolidated assets as reported on the
Call Report for purposes of the leverage
ratio by seventy-five percent of its CECL
transitional amount during the first year
of the transition period, increase average
total consolidated assets as reported on
the Call Report for purposes of the
leverage ratio by fifty percent of its
CECL transitional amount during the
second year of the transition period, and
increase average total consolidated
assets as reported on the Call Report for
purposes of the leverage ratio by twenty-
five percent of its CECL transitional
amount during the third year of the
transition period.
(2) For purposes of the election
described in paragraph (a)(1) of this
section, an advanced approaches or
Category III national bank or Federal
savings association must make the
following additional adjustments to its
calculation of its applicable regulatory
capital ratios:
(i) Increase total leverage exposure for
purposes of the supplementary leverage
ratio by seventy-five percent of its CECL
transitional amount during the first year
of the transition period, increase total
leverage exposure for purposes of the
supplementary leverage ratio by fifty
percent of its CECL transitional amount
during the second year of the transition
period, and increase total leverage
exposure for purposes of the
supplementary leverage ratio by twenty-
five percent of its CECL transitional
amount during the third year of the
transition period; and
nsition period, increase total
leverage exposure for purposes of the
supplementary leverage ratio by fifty
percent of its CECL transitional amount
during the second year of the transition
period, and increase total leverage
exposure for purposes of the
supplementary leverage ratio by twenty-
five percent of its CECL transitional
amount during the third year of the
transition period; and
(ii) An advanced approaches national
bank or Federal savings association that
has completed the parallel run process
and that has received notification from
the OCC pursuant to § 3.121(d) must
decrease amounts of eligible credit
reserves by seventy-five percent of its
eligible credit reserves transitional
amount during the first year of the
transition period, decrease amounts of
eligible credit reserves by fifty percent
of its eligible credit reserves transitional
amount during the second year of the
transition provision, and decrease
amounts of eligible credit reserves by
twenty-five percent of its eligible credit
reserves transitional amount during the
third year of the transition period.
(d) 2020 CECL transition provision.
Notwithstanding paragraph (a) of this
section, a national bank or Federal
savings association that adopts CECL for
accounting purposes under GAAP as of
the first day of a fiscal year that begins
during the 2020 calendar year may elect
to use the transitional amounts and
modified transitional amounts in
paragraph (d)(1) of this section with the
2020 CECL transition provision
calculation in paragraph (d)(2) of this
section to adjust its calculation of
regulatory capital ratios during each
quarter of the transition period in which
a national bank or Federal savings
association uses CECL for purposes of
its Call Report. A national bank or
Federal savings association may use the
transition provision in this paragraph
tion with the
2020 CECL transition provision
calculation in paragraph (d)(2) of this
section to adjust its calculation of
regulatory capital ratios during each
quarter of the transition period in which
a national bank or Federal savings
association uses CECL for purposes of
its Call Report. A national bank or
Federal savings association may use the
transition provision in this paragraph
(d) if it has a positive modified CECL
transitional amount during any quarter
ending in 2020, and makes the election
in the Call Report filed for the same
quarter. A national bank or Federal
savings association that does not
calculate a positive modified CECL
transitional amount in any quarter is not
required to apply the adjustments in its
calculation of regulatory capital ratios in
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Federal Register / Vol. 85, No. 190 / Wednesday, September 30, 2020 / Rules and Regulations
paragraph (d)(2) of this section in that
quarter.
(1) Definitions. For purposes of the
2020 CECL transition provision
calculation in paragraph (d)(2) of this
section, the following definitions apply:
(i) Modified CECL transitional amount
means:
(A) During the first two years of the
transition period, the difference
between AACL as reported in the most
recent Call Report and the AACL as of
the beginning of the fiscal year in which
the national bank or Federal savings
association adopts CECL, multiplied by
0.25, plus the CECL transitional amount;
and
(B) During the last three years of the
transition period, the difference
between AACL as reported in the Call
Report at the end of the second year of
the transition period and the AACL as
of the beginning of the fiscal year in
which the national bank or Federal
savings association adopts CECL,
multiplied by 0.25, plus the CECL
transitional amount.
plus the CECL transitional amount;
and
(B) During the last three years of the
transition period, the difference
between AACL as reported in the Call
Report at the end of the second year of
the transition period and the AACL as
of the beginning of the fiscal year in
which the national bank or Federal
savings association adopts CECL,
multiplied by 0.25, plus the CECL
transitional amount.
(ii) Modified AACL transitional
amount means:
(A) During the first two years of the
transition period, the difference
between AACL as reported in the most
recent Call Report and the AACL as of
the beginning of the fiscal year in which
the national bank or Federal savings
association adopts CECL, multiplied by
0.25, plus the AACL transitional
amount; and
(B) During the last three years of the
transition period, the difference
between AACL as reported in the Call
Report at the end of the second year of
the transition period and the AACL as
of the beginning of the fiscal year in
which the national bank or Federal
savings association adopts CECL,
multiplied by 0.25, plus the AACL
transitional amount.
(2) Calculation of 2020 CECL
transition provision. (i) A national bank
or Federal savings association that has
elected the 2020 CECL transition
provision described in this paragraph
(d) may make the following adjustments
in its calculation of regulatory capital
ratios:
(A) Increase retained earnings by one-
hundred percent of its modified CECL
transitional amount during the first year
of the transition period, increase
retained earnings by one hundred
percent of its modified CECL
transitional amount during the second
year of the transition period, increase
retained earnings by seventy-five
percent of its modified CECL
transitional amount during the third
year of the transition period, increase
retained earnings by fifty percent of its
modified CECL transitional amount
during the fourth year of the transition
period, and increase retained earnings
by twenty-five percent of its modifie
uring the second
year of the transition period, increase
retained earnings by seventy-five
percent of its modified CECL
transitional amount during the third
year of the transition period, increase
retained earnings by fifty percent of its
modified CECL transitional amount
during the fourth year of the transition
period, and increase retained earnings
by twenty-five percent of its modified
CECL transitional amount during the
fifth year of the transition period;
(B) Decrease amounts of DTAs arising
from temporary differences by one-
hundred percent of its DTA transitional
amount during the first year of the
transition period, decrease amounts of
DTAs arising from temporary
differences by one hundred percent of
its DTA transitional amount during the
second year of the transition period,
decrease amounts of DTAs arising from
temporary differences by seventy-five
percent of its DTA transitional amount
during the third year of the transition
period, decrease amounts of DTAs
arising from temporary differences by
fifty percent of its DTA transitional
amount during the fourth year of the
transition period, and decrease amounts
of DTAs arising from temporary
differences by twenty-five percent of its
DTA transitional amount during the
fifth year of the transition period;
(C) Decrease amounts of AACL by
one-hundred percent of its modified
AACL transitional amount during the
first year of the transition period,
decrease amounts of AACL by one
hundred percent of its modified AACL
transitional amount during the second
year of the transition period, decrease
amounts of AACL by seventy-five
percent of its modified AACL
transitional amount during the third
year of the transition period, decrease
amounts of AACL by fifty percent of its
modified AACL transitional amount
during the fourth year of the transition
period, and decrease amounts of AACL
by twenty-five percent of its modified
AACL transitional amount during the
fifth year of the transition period; and
(D) Increase averag
cent of its modified AACL
transitional amount during the third
year of the transition period, decrease
amounts of AACL by fifty percent of its
modified AACL transitional amount
during the fourth year of the transition
period, and decrease amounts of AACL
by twenty-five percent of its modified
AACL transitional amount during the
fifth year of the transition period; and
(D) Increase average total consolidated
assets as reported on the Call Report for
purposes of the leverage ratio by one-
hundred percent of its modified CECL
transitional amount during the first year
of the transition period, increase average
total consolidated assets as reported on
the Call Report for purposes of the
leverage ratio by one hundred percent of
its modified CECL transitional amount
during the second year of the transition
period, increase average total
consolidated assets as reported on the
Call Report for purposes of the leverage
ratio by seventy-five percent of its
modified CECL transitional amount
during the third year of the transition
period, increase average total
consolidated assets as reported on the
Call Report for purposes of the leverage
ratio by fifty percent of its modified
CECL transitional amount during the
fourth year of the transition period, and
increase average total consolidated
assets as reported on the Call Report for
purposes of the leverage ratio by twenty-
five percent of its modified CECL
transitional amount during the fifth year
of the transition period.
ed on the
Call Report for purposes of the leverage
ratio by fifty percent of its modified
CECL transitional amount during the
fourth year of the transition period, and
increase average total consolidated
assets as reported on the Call Report for
purposes of the leverage ratio by twenty-
five percent of its modified CECL
transitional amount during the fifth year
of the transition period.
(ii) An advanced approaches or
Category III national bank or Federal
savings association that has elected the
2020 CECL transition provision
described in this paragraph (d) may
make the following additional
adjustments to its calculation of its
applicable regulatory capital ratios:
(A) Increase total leverage exposure
for purposes of the supplementary
leverage ratio by one-hundred percent of
its modified CECL transitional amount
during the first year of the transition
period, increase total leverage exposure
for purposes of the supplementary
leverage ratio by one hundred percent of
its modified CECL transitional amount
during the second year of the transition
period, increase total leverage exposure
for purposes of the supplementary
leverage ratio by seventy-five percent of
its modified CECL transitional amount
during the third year of the transition
period, increase total leverage exposure
for purposes of the supplementary
leverage ratio by fifty percent of its
modified CECL transitional amount
during the fourth year of the transition
period, and increase total leverage
exposure for purposes of the
supplementary leverage ratio by twenty-
five percent of its modified CECL
transitional amount during the fifth year
of the transition period; and
(B) An advanced approaches national
bank or Federal savings association that
has completed the parallel run process
and that has received notification from
the OCC pursuant to § 3.121(d) must
decrease amounts of eligible credit
reserves by one-hundred percent of its
eligible credit reserves transitional
amount during the first year of the
ng the fifth year
of the transition period; and
(B) An advanced approaches national
bank or Federal savings association that
has completed the parallel run process
and that has received notification from
the OCC pursuant to § 3.121(d) must
decrease amounts of eligible credit
reserves by one-hundred percent of its
eligible credit reserves transitional
amount during the first year of the
transition period, decrease amounts of
eligible credit reserves by one hundred
percent of its eligible credit reserves
transitional amount during the second
year of the transition period, decrease
amounts of eligible credit reserves by
seventy-five percent of its eligible credit
reserves transitional amount during the
third year of the transition period,
decrease amounts of eligible credit
reserves by fifty percent of its eligible
credit reserves transitional amount
during the fourth year of the transition
period, and decrease amounts of eligible
credit reserves by twenty-five percent of
its eligible credit reserves transitional
amount during the fifth year of the
transition period.
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(e) Eligible credit reserves shortfall.
An advanced approaches national bank
or Federal savings association that has
completed the parallel run process and
that has received notification from the
OCC pursuant to § 3.121(d), and whose
amount of expected credit loss exceeded
its eligible credit reserves immediately
prior to the adoption of CECL, and that
has an increase in common equity tier
1 capital as of the beginning of the fiscal
year in which it adopts CECL after
including the first year portion of the
CECL transitional amount (or modified
CECL transitional amount) must
decrease its CECL transitional amount
(or modified CECL transitional amount)
used in par
ligible credit reserves immediately
prior to the adoption of CECL, and that
has an increase in common equity tier
1 capital as of the beginning of the fiscal
year in which it adopts CECL after
including the first year portion of the
CECL transitional amount (or modified
CECL transitional amount) must
decrease its CECL transitional amount
(or modified CECL transitional amount)
used in paragraph (c) of this section by
the full amount of its DTA transitional
amount.
(f) Business combinations.
Notwithstanding any other requirement
in this section, for purposes of this
paragraph (f), in the event of a business
combination involving a national bank
or Federal savings association where
one or both of the national banks or
Federal savings associations have
elected the treatment described in this
section:
(1) If the acquirer national bank or
Federal savings association (as
determined under GAAP) elected the
treatment described in this section, the
acquirer national bank or Federal
savings association must continue to use
the transitional amounts (unaffected by
the business combination) that it
calculated as of the date that it adopted
CECL through the end of its transition
period.
(2) If the acquired insured depository
institution (as determined under GAAP)
elected the treatment described in this
section, any transitional amount of the
acquired insured depository institution
does not transfer to the resulting
national bank or Federal savings
association.
BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
12 CFR Chapter II
Authority and Issuance
■For the reasons set forth in the
preamble, the interim final rule
amending chapter II of title 12 of the
Code of Federal Regulations, which was
published at 85 FR 17723 on March 31,
2020, and amended at 85 FR 29839 on
May 19, 2020, is adopted as final with
the following changes:
PART 217—CAPITAL ADEQUACY OF
BANK HOLDING COMPANIES,
SAVINGS AND LOAN HOLDING
COMPANIES, AND STATE MEMBER
BANKS (REGULATION Q)
■3
rth in the
preamble, the interim final rule
amending chapter II of title 12 of the
Code of Federal Regulations, which was
published at 85 FR 17723 on March 31,
2020, and amended at 85 FR 29839 on
May 19, 2020, is adopted as final with
the following changes:
PART 217—CAPITAL ADEQUACY OF
BANK HOLDING COMPANIES,
SAVINGS AND LOAN HOLDING
COMPANIES, AND STATE MEMBER
BANKS (REGULATION Q)
■3. The authority citation for part 217
continues to read as follows:
Authority: 12 U.S.C. 248(a), 321–338a,
481–486, 1462a, 1467a, 1818, 1828, 1831n,
1831o, 1831p–1, 1831w, 1835, 1844(b), 1851,
3904, 3906–3909, 4808, 5365, 5368, 5371,
5371 note, and sec. 4012, Pub. L. 116–136,
134 Stat. 281.
Subpart G—Transition Provisions
■4. Revise § 217.301 to read as follows:
§ 217.301
Current expected credit losses
(CECL) transition.
(a) CECL transition provision. (1)
Except as provided in paragraph (d) of
this section, a Board-regulated
institution may elect to use a CECL
transition provision pursuant to this
section only if the Board-regulated
institution records a reduction in
retained earnings due to the adoption of
CECL as of the beginning of the fiscal
year in which the Board-regulated
institution adopts CECL.
(2) Except as provided in paragraph
(d) of this section, a Board-regulated
institution that elects to use the CECL
transition provision must elect to use
the CECL transition provision in the
first Call Report or FR Y–9C that
includes CECL filed by the Board-
regulated institution after it adopts
CECL.
(3) A Board-regulated institution that
does not elect to use the CECL transition
provision as of the first Call Report or
FR Y–9C that includes CECL filed as
described in paragraph (a)(2) of this
section may not elect to use the CECL
transition provision in subsequent
reporting periods.
Report or FR Y–9C that
includes CECL filed by the Board-
regulated institution after it adopts
CECL.
(3) A Board-regulated institution that
does not elect to use the CECL transition
provision as of the first Call Report or
FR Y–9C that includes CECL filed as
described in paragraph (a)(2) of this
section may not elect to use the CECL
transition provision in subsequent
reporting periods.
(b) Definitions. For purposes of this
section, the following definitions apply:
(1) Transition period means the three-
year period beginning the first day of
the fiscal year in which a Board-
regulated institution adopts CECL and
reflects CECL in its first Call Report or
FR Y–9C filed after that date; or, for the
2020 CECL transition provision under
paragraph (d) of this section, the five-
year period beginning on the earlier of
the date a Board-regulated institution
was required to adopt CECL for
accounting purposes under GAAP (as in
effect January 1, 2020), or the first day
of the fiscal year that begins during the
2020 calendar year in which the Board-
regulated institution files regulatory
reports that include CECL.
(2) CECL transitional amount means
the difference net of any DTAs, in the
amount of a Board-regulated
institution’s retained earnings as of the
beginning of the fiscal year in which the
Board-regulated institution adopts CECL
from the amount of the Board-regulated
institution’s retained earnings as of the
closing of the fiscal year-end
immediately prior to the Board-
regulated institution’s adoption of
CECL.
(3) DTA transitional amount means
the difference in the amount of a Board-
regulated institution’s DTAs arising
from temporary differences as of the
beginning of the fiscal year in which the
Board-regulated institution adopts CECL
from the amount of the Board-regulated
institution’s DTAs arising from
temporary differences as of the closing
of the fiscal year-end immediately prior
to the Board-regulated institution’s
adoption of CECL.
in the amount of a Board-
regulated institution’s DTAs arising
from temporary differences as of the
beginning of the fiscal year in which the
Board-regulated institution adopts CECL
from the amount of the Board-regulated
institution’s DTAs arising from
temporary differences as of the closing
of the fiscal year-end immediately prior
to the Board-regulated institution’s
adoption of CECL.
(4) AACL transitional amount means
the difference in the amount of a Board-
regulated institution’s AACL as of the
beginning of the fiscal year in which the
Board-regulated institution adopts CECL
and the amount of the Board-regulated
institution’s ALLL as of the closing of
the fiscal year-end immediately prior to
the Board-regulated institution’s
adoption of CECL.
(5) Eligible credit reserves transitional
amount means the difference in the
amount of a Board-regulated
institution’s eligible credit reserves as of
the beginning of the fiscal year in which
the Board-regulated institution adopts
CECL from the amount of the Board-
regulated institution’s eligible credit
reserves as of the closing of the fiscal
year-end immediately prior to the
Board-regulated institution’s adoption
of CECL.
(c) Calculation of the three-year CECL
transition provision. (1) For purposes of
the election described in paragraph
(a)(1) of this section and except as
provided in paragraph (d) of this
section, a Board-regulated institution
must make the following adjustments in
its calculation of regulatory capital
ratios:
end immediately prior to the
Board-regulated institution’s adoption
of CECL.
(c) Calculation of the three-year CECL
transition provision. (1) For purposes of
the election described in paragraph
(a)(1) of this section and except as
provided in paragraph (d) of this
section, a Board-regulated institution
must make the following adjustments in
its calculation of regulatory capital
ratios:
(i) Increase retained earnings by
seventy-five percent of its CECL
transitional amount during the first year
of the transition period, increase
retained earnings by fifty percent of its
CECL transitional amount during the
second year of the transition period, and
increase retained earnings by twenty-
five percent of its CECL transitional
amount during the third year of the
transition period;
(ii) Decrease amounts of DTAs arising
from temporary differences by seventy-
five percent of its DTA transitional
amount during the first year of the
transition period, decrease amounts of
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DTAs arising from temporary
differences by fifty percent of its DTA
transitional amount during the second
year of the transition period, and
decrease amounts of DTAs arising from
temporary differences by twenty-five
percent of its DTA transitional amount
during the third year of the transition
period;
(iii) Decrease amounts of AACL by
seventy-five percent of its AACL
transitional amount during the first year
of the transition period, decrease
amounts of AACL by fifty percent of its
AACL transitional amount during the
second year of the transition period, and
decrease amounts of AACL by twenty-
five percent of its AACL transitional
amount during the third year of the
transition period; and
Decrease amounts of AACL by
seventy-five percent of its AACL
transitional amount during the first year
of the transition period, decrease
amounts of AACL by fifty percent of its
AACL transitional amount during the
second year of the transition period, and
decrease amounts of AACL by twenty-
five percent of its AACL transitional
amount during the third year of the
transition period; and
(iv) Increase average total
consolidated assets as reported on the
Call Report or FR Y–9C for purposes of
the leverage ratio by seventy-five
percent of its CECL transitional amount
during the first year of the transition
period, increase average total
consolidated assets as reported on the
Call Report or FR Y–9C for purposes of
the leverage ratio by fifty percent of its
CECL transitional amount during the
second year of the transition period, and
increase average total consolidated
assets as reported on the Call Report or
FR Y–9C for purposes of the leverage
ratio by twenty-five percent of its CECL
transitional amount during the third
year of the transition period.
(2) For purposes of the election
described in paragraph (a)(1) of this
section, an advanced approaches or
Category III Board-regulated institution
must make the following additional
adjustments to its calculation of its
applicable regulatory capital ratios:
(i) Increase total leverage exposure for
purposes of the supplementary leverage
ratio by seventy-five percent of its CECL
transitional amount during the first year
of the transition period, increase total
leverage exposure for purposes of the
supplementary leverage ratio by fifty
percent of its CECL transitional amount
during the second year of the transition
period, and increase total leverage
exposure for purposes of the
supplementary leverage ratio by twenty-
five percent of its CECL transitional
amount during the third year of the
transition period; and
nsition period, increase total
leverage exposure for purposes of the
supplementary leverage ratio by fifty
percent of its CECL transitional amount
during the second year of the transition
period, and increase total leverage
exposure for purposes of the
supplementary leverage ratio by twenty-
five percent of its CECL transitional
amount during the third year of the
transition period; and
(ii) An advanced approaches Board-
regulated institution that has completed
the parallel run process and that has
received notification from the Board
pursuant to § 217.121(d) must decrease
amounts of eligible credit reserves by
seventy-five percent of its eligible credit
reserves transitional amount during the
first year of the transition period,
decrease amounts of eligible credit
reserves by fifty percent of its eligible
credit reserves transitional amount
during the second year of the transition
provision, and decrease amounts of
eligible credit reserves by twenty-five
percent of its eligible credit reserves
transitional amount during the third
year of the transition period.
(d) 2020 CECL transition provision.
Notwithstanding paragraph (a) of this
section, a Board-regulated institution
that adopts CECL for accounting
purposes under GAAP as of the first day
of a fiscal year that begins during the
2020 calendar year may elect to use the
transitional amounts and modified
transitional amounts in paragraph (d)(1)
of this section with the 2020 CECL
transition provision calculation in
paragraph (d)(2) of this section to adjust
its calculation of regulatory capital
ratios during each quarter of the
transition period in which a Board-
regulated institution uses CECL for
purposes of its Call Report or FR Y–9C.
A Board-regulated institution may use
the transition provision in this
paragraph (d) if it has a positive
modified CECL transitional amount
during any quarter ending in 2020, and
makes the election in the Call Report or
FR Y–9C filed for the same quarter
ing each quarter of the
transition period in which a Board-
regulated institution uses CECL for
purposes of its Call Report or FR Y–9C.
A Board-regulated institution may use
the transition provision in this
paragraph (d) if it has a positive
modified CECL transitional amount
during any quarter ending in 2020, and
makes the election in the Call Report or
FR Y–9C filed for the same quarter. A
Board-regulated institution that does not
calculate a positive modified CECL
transitional amount in any quarter is not
required to apply the adjustments in its
calculation of regulatory capital ratios in
paragraph (d)(2) of this section in that
quarter.
(1) Definitions. For purposes of the
2020 CECL transition provision
calculation in paragraph (d)(2) of this
section, the following definitions apply:
(i) Modified CECL transitional amount
means:
(A) During the first two years of the
transition period, the difference
between AACL as reported in the most
recent Call Report or FR Y–9C, and the
AACL as of the beginning of the fiscal
year in which the Board-regulated
institution adopts CECL, multiplied by
0.25, plus the CECL transitional amount;
and
(B) During the last three years of the
transition period, the difference
between AACL as reported in the Call
Report or Y–9C at the end of the second
year of the transition period and the
AACL as of the beginning of the fiscal
year in which the Board-regulated
institution adopts CECL, multiplied by
0.25, plus the CECL transitional amount.
by
0.25, plus the CECL transitional amount;
and
(B) During the last three years of the
transition period, the difference
between AACL as reported in the Call
Report or Y–9C at the end of the second
year of the transition period and the
AACL as of the beginning of the fiscal
year in which the Board-regulated
institution adopts CECL, multiplied by
0.25, plus the CECL transitional amount.
(ii) Modified AACL transitional
amount means:
(A) During the first two years of the
transition period, the difference
between AACL as reported in the most
recent Call Report or FR Y–9C, and the
AACL as of the beginning of the fiscal
year in which the Board-regulated
institution adopts CECL, multiplied by
0.25, plus the AACL transitional
amount; and
(B) During the last three years of the
transition period, the difference
between AACL as reported in the Call
Report or FR Y–9C at the end of the
second year of the transition period and
the AACL as of the beginning of the
fiscal year in which the Board-regulated
institution adopts CECL, multiplied by
0.25, plus the AACL transitional
amount.
(2) Calculation of 2020 CECL
transition provision. (i) A Board-
regulated institution that has elected the
2020 CECL transition provision
described in this paragraph (d) may
make the following adjustments in its
calculation of regulatory capital ratios:
(A) Increase retained earnings by one-
hundred percent of its modified CECL
transitional amount during the first year
of the transition period, increase
retained earnings by one hundred
percent of its modified CECL
transitional amount during the second
year of the transition period, increase
retained earnings by seventy-five
percent of its modified CECL
transitional amount during the third
year of the transition period, increase
retained earnings by fifty percent of its
modified CECL transitional amount
during the fourth year of the transition
period, and increase retained earnings
by twenty-five percent of its modified
CECL transitional amount
e transition period, increase
retained earnings by seventy-five
percent of its modified CECL
transitional amount during the third
year of the transition period, increase
retained earnings by fifty percent of its
modified CECL transitional amount
during the fourth year of the transition
period, and increase retained earnings
by twenty-five percent of its modified
CECL transitional amount during the
fifth year of the transition period;
(B) Decrease amounts of DTAs arising
from temporary differences by one-
hundred percent of its DTA transitional
amount during the first year of the
transition period, decrease amounts of
DTAs arising from temporary
differences by one hundred percent of
its DTA transitional amount during the
second year of the transition period,
decrease amounts of DTAs arising from
temporary differences by seventy-five
percent of its DTA transitional amount
during the third year of the transition
period, decrease amounts of DTAs
arising from temporary differences by
fifty percent of its DTA transitional
amount during the fourth year of the
transition period, and decrease amounts
of DTAs arising from temporary
differences by twenty-five percent of its
DTA transitional amount during the
fifth year of the transition period;
(C) Decrease amounts of AACL by
one-hundred percent of its modified
AACL transitional amount during the
first year of the transition period,
decrease amounts of AACL by one
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A transitional amount during the
fifth year of the transition period;
(C) Decrease amounts of AACL by
one-hundred percent of its modified
AACL transitional amount during the
first year of the transition period,
decrease amounts of AACL by one
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hundred percent of its modified AACL
transitional amount during the second
year of the transition period, decrease
amounts of AACL by seventy-five
percent of its modified AACL
transitional amount during the third
year of the transition period, decrease
amounts of AACL by fifty percent of its
AACL transitional amount during the
fourth year of the transition period, and
decrease amounts of AACL by twenty-
five percent of its AACL transitional
amount during the fifth year of the
transition period; and
(D) Increase average total consolidated
assets as reported on the Call Report or
FR Y–9C for purposes of the leverage
ratio by one-hundred percent of its
modified CECL transitional amount
during the first year of the transition
period, increase average total
consolidated assets as reported on the
Call Report or FR Y–9C for purposes of
the leverage ratio by one hundred
percent of its modified CECL
transitional amount during the second
year of the transition period, increase
average total consolidated assets as
reported on the Call Report or FR Y–9C
for purposes of the leverage ratio by
seventy-five percent of its modified
CECL transitional amount during the
third year of the transition period,
increase average total consolidated
assets as reported on the Call Report or
FR Y–9C for purposes of the leverage
ratio by fifty percent of its modified
CECL transitional amount during the
fourth year of the transition period, and
increase average total consolidated
assets as reported on the Call Re
of its modified
CECL transitional amount during the
third year of the transition period,
increase average total consolidated
assets as reported on the Call Report or
FR Y–9C for purposes of the leverage
ratio by fifty percent of its modified
CECL transitional amount during the
fourth year of the transition period, and
increase average total consolidated
assets as reported on the Call Report or
FR Y–9C for purposes of the leverage
ratio by twenty-five percent of its
modified CECL transitional amount
during the fifth year of the transition
period.
(ii) An advanced approaches or
Category III Board-regulated institution
that has elected the 2020 CECL
transition provision described in this
paragraph (d) may make the following
additional adjustments to its calculation
of its applicable regulatory capital
ratios:
(A) Increase total leverage exposure
for purposes of the supplementary
leverage ratio by one-hundred percent of
its modified CECL transitional amount
during the first year of the transition
period, increase total leverage exposure
for purposes of the supplementary
leverage ratio by one hundred percent of
its modified CECL transitional amount
during the second year of the transition
period, increase total leverage exposure
for purposes of the supplementary
leverage ratio by seventy-five percent of
its modified CECL transitional amount
during the third year of the transition
period, increase total leverage exposure
for purposes of the supplementary
leverage ratio by fifty percent of its
modified CECL transitional amount
during the fourth year of the transition
period, and increase total leverage
exposure for purposes of the
supplementary leverage ratio by twenty-
five percent of its modified CECL
transitional amount during the fifth year
of the transition period; and
(B) An advanced approaches Board-
regulated institution that has completed
the parallel run process and that has
received notification from the Board
pursuant to § 217.121(d) must decrease
amoun
ease total leverage
exposure for purposes of the
supplementary leverage ratio by twenty-
five percent of its modified CECL
transitional amount during the fifth year
of the transition period; and
(B) An advanced approaches Board-
regulated institution that has completed
the parallel run process and that has
received notification from the Board
pursuant to § 217.121(d) must decrease
amounts of eligible credit reserves by
one-hundred percent of its eligible
credit reserves transitional amount
during the first year of the transition
period, decrease amounts of eligible
credit reserves by one hundred percent
of its eligible credit reserves transitional
amount during the second year of the
transition period, decrease amounts of
eligible credit reserves by seventy-five
percent of its eligible credit reserves
transitional amount during the third
year of the transition period, decrease
amounts of eligible credit reserves by
fifty percent of its eligible credit
reserves transitional amount during the
fourth year of the transition period, and
decrease amounts of eligible credit
reserves by twenty-five percent of its
eligible credit reserves transitional
amount during the fifth year of the
transition period.
(e) Eligible credit reserves shortfall.
An advanced approaches Board-
regulated institution that has completed
the parallel run process and that has
received notification from the Board
pursuant to § 217.121(d), whose amount
of expected credit loss exceeded its
eligible credit reserves immediately
prior to the adoption of CECL, and that
has an increase in common equity tier
1 capital as of the beginning of the fiscal
year in which it adopts CECL after
including the first year portion of the
CECL transitional amount (or modified
CECL transitional amount) must
decrease its CECL transitional amount
used in paragraph (c) of this section (or
modified CECL transitional amount
used in paragraph (d) of this section) by
the full amount of its DTA transitional
amount.
capital as of the beginning of the fiscal
year in which it adopts CECL after
including the first year portion of the
CECL transitional amount (or modified
CECL transitional amount) must
decrease its CECL transitional amount
used in paragraph (c) of this section (or
modified CECL transitional amount
used in paragraph (d) of this section) by
the full amount of its DTA transitional
amount.
(f) Business combinations.
Notwithstanding any other requirement
in this section, for purposes of this
paragraph (f), in the event of a business
combination involving a Board-
regulated institution where one or both
Board-regulated institutions have
elected the treatment described in this
section:
(1) If the acquirer Board-regulated
institution (as determined under GAAP)
elected the treatment described in this
section, the acquirer Board-regulated
institution must continue to use the
transitional amounts (unaffected by the
business combination) that it calculated
as of the date that it adopted CECL
through the end of its transition period.
(2) If the acquired company (as
determined under GAAP) elected the
treatment described in this section, any
transitional amount of the acquired
company does not transfer to the
resulting Board-regulated institution.
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Chapter III
Authority and Issuance
■For the reasons set forth in the
preamble, the interim final rule
amending chapter III of title 12 of the
Code of Federal Regulations, which was
published at 85 FR 17723 on March 31,
2020, and amended at 85 FR 29839 on
May 19, 2020, is adopted as final with
the following changes:
PART 324—CAPITAL ADEQUACY OF
FDIC-SUPERVISED INSTITUTIONS
■5. The authority citation for part 324
is revised to read as follows:
Authority: 12 U.S.C. 1815(a), 1815(b),
1816, 1818(a), 1818(b), 1818(c), 1818(t),
1819(Tenth), 1828(c), 1828(d), 1828(i),
1828(n), 1828(o), 1831o, 1835, 3907, 3909,
4808; 5371; 5412; Pub. L. 102–233, 105 Stat.
1761, 1789, 1790 (12 U.S.C
h
the following changes:
PART 324—CAPITAL ADEQUACY OF
FDIC-SUPERVISED INSTITUTIONS
■5. The authority citation for part 324
is revised to read as follows:
Authority: 12 U.S.C. 1815(a), 1815(b),
1816, 1818(a), 1818(b), 1818(c), 1818(t),
1819(Tenth), 1828(c), 1828(d), 1828(i),
1828(n), 1828(o), 1831o, 1835, 3907, 3909,
4808; 5371; 5412; Pub. L. 102–233, 105 Stat.
1761, 1789, 1790 (12 U.S.C. 1831n note); Pub.
L. 102–242, 105 Stat. 2236, 2355, as amended
by Pub. L. 103–325, 108 Stat. 2160, 2233 (12
U.S.C. 1828 note); Pub. L. 102–242, 105 Stat.
2236, 2386, as amended by Pub. L. 102–550,
106 Stat. 3672, 4089 (12 U.S.C. 1828 note);
Pub. L. 111–203, 124 Stat. 1376, 1887 (15
U.S.C. 78o–7 note), Pub. L. 115–174; section
4014, Pub. L. 116–136, 134 Stat. 281 (15
U.S.C. 9052).
■6. Revise § 324.301 to read as follows:
§ 324.301
Current expected credit losses
(CECL) transition.
(a) CECL transition provision. (1)
Except as provided in paragraph (d) of
this section, an FDIC-supervised
institution may elect to use a CECL
transition provision pursuant to this
section only if the FDIC-supervised
institution records a reduction in
retained earnings due to the adoption of
CECL as of the beginning of the fiscal
year in which the FDIC-supervised
institution adopts CECL.
(2) Except as provided in paragraph
(d) of this section, an FDIC-supervised
institution that elects to use the CECL
transition provision must elect to use
the CECL transition provision in the
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first Call Report that includes CECL
filed by the FDIC-supervised institution
after it adopts CECL.
to use
the CECL transition provision in the
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first Call Report that includes CECL
filed by the FDIC-supervised institution
after it adopts CECL.
(3) An FDIC-supervised institution
that does not elect to use the CECL
transition provision as of the first Call
Report that includes CECL filed as
described in paragraph (a)(2) of this
section may not elect to use the CECL
transition provision in subsequent
reporting periods.
(b) Definitions. For purposes of this
section, the following definitions apply:
(1) Transition period means the three-
year period, beginning the first day of
the fiscal year in which an FDIC-
supervised institution adopts CECL and
reflects CECL in its first Call Report
filed after that date; or, for the 2020
CECL transition provision under
paragraph (d) of this section, the five-
year period beginning on the earlier of
the date an FDIC-supervised institution
was required to adopt CECL for
accounting purposes under GAAP (as in
effect January 1, 2020), or the first day
of the fiscal year that begins during the
2020 calendar year in which the FDIC-
supervised institution files regulatory
reports that include CECL.
(2) CECL transitional amount means
the difference, net of any DTAs, in the
amount of an FDIC-supervised
institution’s retained earnings as of the
beginning of the fiscal year in which the
FDIC-supervised institution adopts
CECL from the amount of the FDIC-
supervised institution’s retained
earnings as of the closing of the fiscal
year-end immediately prior to the FDIC-
supervised institution’s adoption of
CECL.
nt means
the difference, net of any DTAs, in the
amount of an FDIC-supervised
institution’s retained earnings as of the
beginning of the fiscal year in which the
FDIC-supervised institution adopts
CECL from the amount of the FDIC-
supervised institution’s retained
earnings as of the closing of the fiscal
year-end immediately prior to the FDIC-
supervised institution’s adoption of
CECL.
(3) DTA transitional amount means
the difference in the amount of an FDIC-
supervised institution’s DTAs arising
from temporary differences as of the
beginning of the fiscal year in which the
FDIC-supervised institution adopts
CECL from the amount of the FDIC-
supervised institution’s DTAs arising
from temporary differences as of the
closing of the fiscal year-end
immediately prior to the FDIC-
supervised institution’s adoption of
CECL.
(4) AACL transitional amount means
the difference in the amount of an FDIC-
supervised institution’s AACL as of the
beginning of the fiscal year in which the
FDIC-supervised institution adopts
CECL and the amount of the FDIC-
supervised institution’s ALLL as of the
closing of the fiscal year-end
immediately prior to the FDIC-
supervised institution’s adoption of
CECL.
(5) Eligible credit reserves transitional
amount means the difference in the
amount of an FDIC-supervised
institution’s eligible credit reserves as of
the beginning of the fiscal year in which
the FDIC-supervised institution adopts
CECL from the amount of the FDIC-
supervised institution’s eligible credit
reserves as of the closing of the fiscal
year-end immediately prior to the FDIC-
supervised institution’s adoption of
CECL.
(c) Calculation of the three-year CECL
transition provision. (1) For purposes of
the election described in paragraph
(a)(1) of this section and except as
provided in paragraph (d) of this
section, an FDIC-supervised institution
must make the following adjustments in
its calculation of regulatory capital
ratios:
d immediately prior to the FDIC-
supervised institution’s adoption of
CECL.
(c) Calculation of the three-year CECL
transition provision. (1) For purposes of
the election described in paragraph
(a)(1) of this section and except as
provided in paragraph (d) of this
section, an FDIC-supervised institution
must make the following adjustments in
its calculation of regulatory capital
ratios:
(i) Increase retained earnings by
seventy-five percent of its CECL
transitional amount during the first year
of the transition period, increase
retained earnings by fifty percent of its
CECL transitional amount during the
second year of the transition period, and
increase retained earnings by twenty-
five percent of its CECL transitional
amount during the third year of the
transition period;
(ii) Decrease amounts of DTAs arising
from temporary differences by seventy-
five percent of its DTA transitional
amount during the first year of the
transition period, decrease amounts of
DTAs arising from temporary
differences by fifty percent of its DTA
transitional amount during the second
year of the transition period, and
decrease amounts of DTAs arising from
temporary differences by twenty-five
percent of its DTA transitional amount
during the third year of the transition
period;
(iii) Decrease amounts of AACL by
seventy-five percent of its AACL
transitional amount during the first year
of the transition period, decrease
amounts of AACL by fifty percent of its
AACL transitional amount during the
second year of the transition period, and
decrease amounts of AACL by twenty-
five percent of its AACL transitional
amount during the third year of the
transition period; and
Decrease amounts of AACL by
seventy-five percent of its AACL
transitional amount during the first year
of the transition period, decrease
amounts of AACL by fifty percent of its
AACL transitional amount during the
second year of the transition period, and
decrease amounts of AACL by twenty-
five percent of its AACL transitional
amount during the third year of the
transition period; and
(iv) Increase average total
consolidated assets as reported on the
Call Report for purposes of the leverage
ratio by seventy-five percent of its CECL
transitional amount during the first year
of the transition period, increase average
total consolidated assets as reported on
the Call Report for purposes of the
leverage ratio by fifty percent of its
CECL transitional amount during the
second year of the transition period, and
increase average total consolidated
assets as reported on the Call Report for
purposes of the leverage ratio by twenty-
five percent of its CECL transitional
amount during the third year of the
transition period.
(2) For purposes of the election
described in paragraph (a)(1) of this
section, an advanced approaches or
Category III FDIC-supervised institution
must make the following additional
adjustments to its calculation of its
applicable regulatory capital ratios:
(i) Increase total leverage exposure for
purposes of the supplementary leverage
ratio by seventy-five percent of its CECL
transitional amount during the first year
of the transition period, increase total
leverage exposure for purposes of the
supplementary leverage ratio by fifty
percent of its CECL transitional amount
during the second year of the transition
period, and increase total leverage
exposure for purposes of the
supplementary leverage ratio by twenty-
five percent of its CECL transitional
amount during the third year of the
transition period; and
nsition period, increase total
leverage exposure for purposes of the
supplementary leverage ratio by fifty
percent of its CECL transitional amount
during the second year of the transition
period, and increase total leverage
exposure for purposes of the
supplementary leverage ratio by twenty-
five percent of its CECL transitional
amount during the third year of the
transition period; and
(ii) An advanced approaches FDIC-
supervised institution that has
completed the parallel run process and
that has received notification from the
FDIC pursuant to § 324.121(d) must
decrease amounts of eligible credit
reserves by seventy-five percent of its
eligible credit reserves transitional
amount during the first year of the
transition period, decrease amounts of
eligible credit reserves by fifty percent
of its eligible credit reserves transitional
amount during the second year of the
transition provision, and decrease
amounts of eligible credit reserves by
twenty-five percent of its eligible credit
reserves transitional amount during the
third year of the transition period.
(d) 2020 CECL transition provision.
Notwithstanding paragraph (a) of this
section, an FDIC-supervised institution
that adopts CECL for accounting
purposes under GAAP as of the first day
of a fiscal year that begins during the
2020 calendar year may elect to use the
transitional amounts and modified
transitional amounts in paragraph (d)(1)
of this section with the 2020 CECL
transition provision calculation in
paragraph (d)(2) of this section to adjust
its calculation of regulatory capital
ratios during each quarter of the
transition period in which an FDIC-
supervised institution uses CECL for
purposes of its Call Report. An FDIC
supervised-institution may use the
transition provision in this paragraph
in paragraph (d)(1)
of this section with the 2020 CECL
transition provision calculation in
paragraph (d)(2) of this section to adjust
its calculation of regulatory capital
ratios during each quarter of the
transition period in which an FDIC-
supervised institution uses CECL for
purposes of its Call Report. An FDIC
supervised-institution may use the
transition provision in this paragraph
(d) if it has a positive modified CECL
transitional amount during any quarter
ending in 2020 and makes the election
in the Call Report filed for the same
quarter. An FDIC-supervised institution
that does not calculate a positive
modified CECL transitional amount in
any quarter is not required to apply the
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61593
Federal Register / Vol. 85, No. 190 / Wednesday, September 30, 2020 / Rules and Regulations
adjustments in its calculation of
regulatory capital ratios in paragraph
(d)(2) of this section in that quarter.
(1) Definitions. For purposes of the
2020 CECL transition provision
calculation in paragraph (d)(2) of this
section, the following definitions apply:
(i) Modified CECL transitional amount
means:
(A) During the first two years of the
transition period, the difference
between AACL as reported in the most
recent Call Report and the AACL as of
the beginning of the fiscal year in which
the FDIC-supervised institution adopts
CECL, multiplied by 0.25, plus the
CECL transitional amount; and
(B) During the last three years of the
transition period, the difference
between AACL as reported in the Call
Report at the end of the second year of
the transition period and the AACL as
of the beginning of the fiscal year in
which the FDIC-supervised institution
adopts CECL, multiplied by 0.25, plus
the CECL transitional amount.
ltiplied by 0.25, plus the
CECL transitional amount; and
(B) During the last three years of the
transition period, the difference
between AACL as reported in the Call
Report at the end of the second year of
the transition period and the AACL as
of the beginning of the fiscal year in
which the FDIC-supervised institution
adopts CECL, multiplied by 0.25, plus
the CECL transitional amount.
(ii) Modified AACL transitional
amount means:
(A) During the first two years of the
transition period, the difference
between AACL as reported in the most
recent Call Report, and the AACL as of
the beginning of the fiscal year in which
the FDIC-supervised institution adopts
CECL, multiplied by 0.25, plus the
AACL transitional amount; and
(B) During the last three years of the
transition period, the difference
between AACL as reported in the Call
Report at the end of the second year of
the transition period and the AACL as
of the beginning of the fiscal year in
which the FDI
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