Blog FinReg + Policy Watch October 08, 2020

Agencies Publish Final Rule on CECL Implementation

On October 1, the OCC, Federal Reserve and Federal Deposit Insurance Corporation (Agencies) published a final rule (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”) by bank organizations.

In March, the Agencies issued an interim final rule (Interim Rule) that permitted banking organizations that were required under U.S. GAAP to implement CECL before the end of 2020 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 Final Rule (1) adopts the Interim Rule in full; (2) permits all banking organizations that adopt CECL in 2020 the option to use the new transition in the Interim Rule, even if not required to adopt CECL under U.S. GAAP in 2020; and (3) clarifies that a banking organization is not required to use the transition in quarters in which it would not generate a regulatory capital benefit. The Final Rule applies to community banks that adopt CECL in 2020 under U.S. GAAP, though most community banks are not required to adopt CECL until 2023.

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