[Federal Register Volume 85, Number 62 (Tuesday, March 31, 2020)]
[Rules and Regulations]
[Pages 17723-17738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06770]
[[Page 17723]]
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DEPARTMENT OF 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: Interim final rule, request for comment.
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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 inviting comment
on an interim 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
interim final rule provides banking organizations that implement CECL
before the end of 2020 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 such
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 (COVID-
19), while also maintaining the quality of regulatory capital.
DATES: Effective date: The interim final rule is effective March 31,
2020. Comment date: Comments on the interim final rule must be received
no later than May 15, 2020.
ADDRESSES: Interested parties are encouraged to submit written comments
jointly to all of the agencies. Commenters are encouraged to use the
title ``Regulatory Capital Rule: Revised Transition of the Current
Expected Credit Losses Methodology for Allowances'' to facilitate the
organization and distribution of comments among the agencies.
Commenters are also encouraged to identify the number of the specific
question for comment to which they are responding. Comments should be
directed to:
OCC: You may submit comments to the OCC by any of the methods set
forth below. Commenters are encouraged to submit comments through the
Federal eRulemaking Portal or email, if possible. Please use the title
``Regulatory Capital Rule: Revised Transition of the Current Expected
Credit Losses Methodology for Allowances'' to facilitate the
organization and distribution of the comments. You may submit comments
by any of the following methods:
Federal eRulemaking Portal--``Regulations.gov Classic or
Regulations.gov Beta''
Regulations.gov Classic: Go to https://www.regulations.gov/. Enter
``Docket ID [Ogr]CC-2020-0010'' in the Search Box and click ``Search.''
Click on ``Comment Now'' to submit public comments. For help with
submitting effective comments please click on ``View Commenter's
Checklist.'' Click on the ``Help'' tab on the Regulations.gov home page
to get information on using Regulations.gov, including instructions for
submitting public comments.
Regulations.gov Beta: Go to https://beta.regulations.gov/ or click
``Visit New Regulations.gov Site'' from the Regulations.gov Classic
homepage. Enter ``Docket ID [Ogr]CC-2020-0010'' in the Search Box and
click ``Search.'' Public comments can be submitted via the ``Comment''
box below the displayed document information or by clicking on the
document title and then clicking the ``Comment'' box on the top-left
side of the screen. For help with submitting effective comments please
click on ``Commenter's Checklist.'' For assistance with the
Regulations.gov Beta site, please call (877) 378-5457 (toll free) or
(703) 454-9859 Monday-Friday, 9 a.m.-5 p.m. ET or email
[email protected].
E-mail: [email protected].
Mail: Chief Counsel's Office, Office of the Comptroller of
the Currency, 400 7th Street SW, Suite 3E-218, Washington, DC 20219.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID [Ogr]CC-2020-0010'' in your comment. In general, the OCC
will enter all comments received into the docket and publish the
comments on the Regulations.gov website without change, including any
business or personal information that you provide such as name and
address information, email addresses, or phone numbers. Comments
received, including attachments and other supporting materials, are
part of the public record and subject to public disclosure. Do not
include any information in your comment or supporting materials that
you consider confidential or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this rulemaking action by any of the following methods:
Viewing Comments Electronically--Regulations.gov Classic
or Regulations.gov Beta:
Regulations.gov Classic: Go to https://www.regulations.gov/. Enter
``Docket ID [Ogr]CC-2020-0010'' in the Search box and click ``Search.''
Click on ``Open Docket Folder'' on the right side of the screen.
Comments and supporting materials can be viewed and filtered by
clicking on ``View all documents and comments in this docket'' and then
using the filtering tools on the left side of the screen. Click on the
``Help'' tab on the Regulations.gov home page to get information on
using Regulations.gov. The docket may be viewed after the close of the
comment period in the same manner as during the comment period.
Regulations.gov Beta: Go to https://beta.regulations.gov/ or click
``Visit New Regulations.gov Site'' from the Regulations.gov Classic
homepage. Enter ``Docket ID [Ogr]CC-2020-0010'' in the Search Box and
click ``Search.'' Click on the ``Comments'' tab. Comments can be viewed
and filtered by clicking on the ``Sort By'' drop-down on the right side
of the screen or the ``Refine Results'' options on the left side of the
screen. Supporting materials can be viewed by clicking on the
``Documents'' tab and filtered by clicking on the ``Sort By'' drop-down
on the right side of the screen or the ``Refine Results'' options on
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Beta site, please call (877) 378-5457 (toll free) or (703) 454-9859
Monday-Friday, 9 a.m.-5 p.m. ET or email
[email protected].
[[Page 17724]]
The docket may be viewed after the close of the comment period in
the same manner as during the comment period.
Board: You may submit comments, identified by Docket No. R-1708 and
RIN 7100-AF82, by any of the following methods:
Agency Website: http://www.federalreserve.gov. Follow the
instructions for submitting comments at https://www.federalreserve.gov/apps/foia/proposedregs.aspx.
Email: [email protected]. Include docket
number and RIN in the subject line of the message.
FAX: (202) 452-3819 or (202) 452-3102.
Mail: Ann E. Misback, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551.
All public comments are available from the Board's website at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons or to remove sensitive
personally identifiable information at the commenter's request. Public
comments may also be viewed electronically or in paper form in Room
146, 1709 New York Avenue NW, Washington, DC 20006, between 9:00 a.m.
and 5:00 p.m. on weekdays.
FDIC: You may submit comments, identified by RIN 3064-AF42, by any
of the following methods:
Agency Website: https://www.fdic.gov/regulations/laws/federal/. Follow the instructions for submitting comments on the Agency
website.
Email: [email protected]. Include the RIN 3064-AF42 in the
subject line of the message.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th
Street NW, Washington, DC 20429.
Hand Delivery/Courier: Comments may be hand-delivered to
the guard station at the rear of the 550 17th Street NW, building
(located on F Street) on business days between 7:00 a.m. and 5:00 p.m.
Instructions: Comments submitted must include ``FDIC'' and ``RIN
3064-AF42.'' Comments received will be posted without change to https://www.fdic.gov/regulations/laws/federal/, including any personal
information provided.
FOR FURTHER INFORMATION CONTACT:
OCC: Margot Schwadron, Director, or Benjamin Pegg, Risk Expert,
Capital and Regulatory Policy, (202) 649-6370; or Kevin Korzeniewski,
Counsel, or Marta Stewart-Bates, Senior Attorney, Chief Counsel's
Office, (202) 649-5490, 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, Manager, (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. Bean, Associate Director, [email protected]; Benedetto
Bosco, Chief, Capital Policy Section, [email protected]; Noah Cuttler,
Senior Policy Analyst, [email protected]; Andrew Carayiannis, Senior
Policy Analyst, [email protected]; [email protected];
Capital Markets Branch, Division of Risk Management Supervision, (202)
898-6888; or Michael Phillips, Counsel, [email protected]; Catherine
Wood, Counsel, [email protected]; Francis Kuo, Counsel, [email protected];
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. The Interim Final Rule
A. Approximating the Impact of CECL
B. Mechanics of the Five-Year Transition Option
C. Other Key Revisions
III. Impact Assessment
IV. 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 issued Accounting
Standards Update 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 (U.S. GAAP). The
revisions to credit loss accounting under U.S. 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 an
estimate of lifetime expected credit losses, while also maintaining the
current requirement that banking organizations consider past events and
current conditions.
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\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.
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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
U.S. GAAP, including CECL (the 2019 CECL rule).\3\ The 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 that are uniform and
consistent with U.S. GAAP,\5\ including banking
[[Page 17725]]
organizations that are subject to the capital rule and those that are
subject to stress testing requirements.
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\3\ 84 FR 4222 (February 14, 2019).
\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.
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The 2019 CECL rule also included a transition option 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 intended for the transition option 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 is largely because CECL requires banking
organizations to consider current and future expected economic
conditions to estimate credit loss allowances.
The spread of coronavirus disease 2019 (COVID-19) has disrupted
economic activity in many countries, including the United States. While
the U.S. government is taking significant steps to mitigate the
magnitude and persistence of the effects of COVID-19, the magnitude and
persistence of the overall effects on the economy remain highly
uncertain. This uncertainty has presented significant operational
challenges to banking organizations at the same time they have been
required to direct significant resources to implement CECL. In
addition, due to the nature of CECL and the uncertainty of future
economic forecasts, banking organizations that have adopted CECL may
continue to experience higher-than-anticipated increases in credit loss
allowances.
To address these concerns and allow banking organizations to better
focus on supporting lending to creditworthy households and businesses,
the agencies are providing banking organizations that adopt in the
current environment an alternate option to temporarily delay a measure
of CECL's effect on regulatory capital, relative to the incurred loss
methodology. The transitional relief provided in the interim final rule
is intended to be simple to implement without imposing undue
operational burden, while reducing the potential for competitive
inequities across banking organizations during this time of economic
uncertainty and maintaining the quality of regulatory capital.
II. The Interim Final Rule
The interim final rule provides banking organizations that adopt
CECL during the 2020 calendar year with the option to delay for two
years the estimated impact of CECL on regulatory capital, followed by a
three-year transition period to phase out the aggregate amount of the
capital benefit provided during the initial two-year delay (i.e., a
five-year transition, in total). The interim final rule does not
replace the current three-year transition option in the 2019 CECL rule,
which remains available to any banking organization at the time that it
adopts CECL. Banking organizations that have already adopted CECL have
the option to elect the three-year transition option contained in the
2019 CECL rule or the five-year transition contained in the interim
final rule, beginning with the March 31, 2020, Call Report or FR Y-9C.
A banking organization is eligible to use the interim final rule's
five-year transition if was required to adopt CECL for purposes of U.S.
GAAP (as in effect January 1, 2020) for a fiscal year that begins
during the 2020 calendar year, and elects to use the transition option
in a Call Report or FR Y-9C (electing banking organization). The
interim final rule provides electing banking organizations with a
methodology for delaying the effect on regulatory capital of an
estimated amount of the increase in the allowance for credit loss (ACL)
that can be attributed to the adoption of CECL, relative to the
increase in the allowance for loan and lease losses (ALLL) that would
occur for banking organizations operating under the incurred loss
methodology.
A. Approximating the Impact of CECL
The agencies considered different ways to determine the portion of
credit loss allowances attributable to CECL eligible for the
transitional relief provided in this interim final rule. To best
capture the effects of CECL on regulatory capital, it would be
necessary for a banking organization to charge against retained
earnings (and common equity tier 1 capital), on a quarterly basis,
provisions for credit losses estimated under the incurred loss
methodology, and to exclude additional provisions for credit losses
estimated under 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 may 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.
To address this concern regarding burden and to promote a
consistent approach across electing banking organizations, the interim
final rule provides a uniform approach for estimating the effect of
CECL during the five-year transition period. Specifically, the interim
final rule introduces a 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. The
interim final rule uses a 25 percent scaling factor as an approximation
of the impact of differences in credit loss allowances reflected under
CECL versus the incurred loss methodology. Various analyses suggest
that credit losses under CECL can be expected to be higher than under
the incurred loss methodology.\6\ The calibration of the scaling factor
is also designed to promote competitive equity in the current economic
environment between electing banking organizations and those banking
organizations that have not yet adopted CECL.
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\6\ 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.
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B. Mechanics of the Five-Year Transition Provision
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). To calculate the transition
for these items, an electing banking organization must first calculate
the CECL transitional amount, the adjusted allowances for credit losses
(AACL) transitional amount, and the DTA transitional amount, consistent
with the 2019 CECL
[[Page 17726]]
rule. 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.
An electing banking organization must adjust several key inputs to
regulatory capital for purposes of the five-year transition. First, an
electing banking organization must increase retained earnings by a
modified CECL transitional amount. The modified CECL transitional
amount is similar to the CECL transitional amount, but 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 day CECL was adopted, and applying a
scaling multiplier of .25 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 is similar to the AACL transitional amount, but reflects the
change in AACL due to CECL that occurs during the first two years of
the five-year transition period. The change in AACL 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 modified CECL and AACL transitional amounts will be calculated
on a quarterly basis during the first two years of the transition
period. An electing banking organization will reflect the modified
transitional amount which includes 100 percent of the day one impact of
CECL plus the quarterly changes that result from CECL in transition
amounts applied to regulatory capital calculations. After two years,
the cumulative amount of quarterly-modified transitional amounts become
fixed and are phased out of regulatory capital along with the
transitional amounts that were calculated to reflect the day one impact
of CECL. The transitional phase out occurs over the subsequent three-
year period: 75 percent of transitional amounts are recognized in
regulatory capital in year three; 50 percent in year four; and 25
percent in year five. After that point the banking organization would
have fully reversed out the temporary regulatory capital benefits of
the two-year delay and adjustments.
Finally, an electing banking organization will apply the
adjustments calculated above during each quarter of the transition
period for purposes of calculating the banking organization's
regulatory capital. No adjustments are reflected in balance sheet or
income statement amounts. The 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 the Coronavirus Aid, Relief, and Economic Security Act
(CARES Act) becomes law and a banking organization chooses to revert to
the incurred loss methodology pursuant to the CARES Act in any quarter
in 2020, the banking organization would not apply any transition
amounts in that quarter but would be allowed to apply the transition in
subsequent quarters when the banking organization returns to the use of
CECL. However, an institution that has elected the transition, but does
not apply it in any quarter, does not receive any extension of the
transition period.
Table 1--CECL Transitional Amounts To Apply to Regulatory Capital Components During the Final Three Years of the
Five-Year Transition
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Year 3 Year 4 Year 5
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Increase retained earnings and average total consolidated assets by
the following percentages of the modified CECL transitional amount...
Decrease temporary difference DTAs by the following percentages of the 75% 50% 25%
DTA transitional amount..............................................
Decrease AACL by the following percentages of the modified AACL
transitional amount..................................................
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C. Other Key Revisions
The interim final rule similarly adjusts the transitional amounts
related to eligible credit reserves for advanced approaches banking
organizations \7\ that elect to use the 2020 CECL five-year transition
option. The interim final rule also adjusts the transitional amounts
related to the supplementary leverage ratio's total exposure amount.
Advanced approaches banking organizations that elect the five-year
transition will continue to be required to disclose two sets of
regulatory capital ratios in section 173 of the capital rule: One set
would reflect the banking organization's capital ratios with the CECL
transition option and the other set would reflect the banking
organization's capital ratios on a fully phased-in basis.
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\7\ 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).
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The interim final rule provides banking organizations that were
required to adopt CECL for purposes of accounting under U.S. GAAP (as
in effect January 1, 2020) in 2020, but that do not use CECL for
regulatory reporting or regulatory capital purposes, with flexibility
to elect the CECL transition when the banking organization is required
to begin using CECL for regulatory reporting purposes. A banking
organization that chooses to delay use of CECL for regulatory reporting
but elects to use CECL during 2020 would also be eligible for a five-
year transition period.
The interim final rule maintains other aspects of the CECL
transition option, such as the requirements for business
combinations.\8\ Through the supervisory process, the agencies will
continue to examine banking organizations' credit loss estimates and
allowance balances regardless of whether the banking
[[Page 17727]]
organization has elected to use the CECL transition option. In
addition, the agencies may assess the capital plans at electing banking
organizations for ensuring sufficient capital at the expiration of the
CECL transition option period.\9\
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\8\ 12 CFR 3.301(c)(4) (OCC); 217.301(c)(4) (Board);
324.301(c)(4) (FDIC).
\9\ The Board is extending 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 Federal Reserve'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 this interim final rule, firms that have already adopted CECL
have the option to either include the adjustments from this interim
final rule in their 2020 stress projections or delay doing so. As
noted in the 2020 CCAR summary instructions, the Federal Reserve
will not issue supervisory findings on banking organizations'
stressed estimates of allowances under CECL until the 2022 CCAR
cycle, at the earliest.
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Question #1: The agencies seek comment on the feasibility of
calculating the modified AACL transitional amount, including whether
there are more suitable methods for determining the amount, and
rationale in support of such methods. In particular, the agencies seek
comment on whether banking organizations would prefer to calculate
provisions under both the CECL and incurred loss methodologies and use
that difference as the basis for the transition, the operational
challenges of doing so, and any concerns associated with using such an
approach.
Question #2: The agencies seek comment on the feasibility of
calculating the modified CECL transitional amount, including whether
there are more suitable methods for determining the amount, and
rationale in support of such methods.
Question #3: For banks that do not adopt CECL in 2020, including
community banking organizations, the agencies seek comment on whether
they should consider any modifications to transitions from the 2019
CECL rule to reduce burden in light of recent disruptions in economic
activity caused by COVID-19.
Question #4: The agencies seek comment on whether a banking
organization that adopts the five-year transition should be required to
also transition the change in temporary difference DTAs related to
provision expenses recognized for the first two years after CECL
adoption. What are the costs associated with such a requirement? Does
ignoring the effect on temporary difference DTAs related to provision
expenses recognized during years one and two of the five-year
transition period when calculating the modified CECL transition amount,
relative to a banking organization that applies the incurred loss
methodology raise any competitive equity concerns? Would the temporary
difference DTAs related to provision expenses during years one and two
of the five-year transition period be material for banking
organizations and should they be reflected in the 2020 transition?
Question #5: The agencies seek comment on the interaction of the
interim final rule and the potential deferral of CECL described in the
pending CARES Act. Further, the agencies seek comment on whether the
interim final rule's requirement that a banking organization adopt CECL
by the end of 2020 in order to be eligible for the five-year
transitional relief, limit a banking organization's ability to utilize
any potential relief from CECL as described in the pending CARES Act.
III. Impact Assessment
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 intend for the interim final rule to mitigate the
extent to which CECL implementation complicates capital planning
challenges posed by COVID-19 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 five-year transition 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 five-year transition option
provided by the interim final rule, banking organizations have time to
adapt capital planning under stress to the new 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 impact of differences in provisions reflected under CECL versus
incurred loss methodology. Each institution will have a unique impact
due to the adoption of CECL, which may be higher or lower than the
amount calculated using the scaling factor. Additionally, the
transition option 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 COVID-19 build
sooner under CECL than they would have under the incurred loss
methodology, the transition option provided in the interim final rule
will not fully offset the capital impact of CECL. However, the agencies
believe that there is a significant benefit to operational simplicity
from using a single scalar for the quarterly adjustments for all
electing banking organizations.
IV. Administrative Law Matters
A. Administrative Procedure Act
The agencies are issuing this interim 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).\10\ 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.'' \11\
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\10\ 5 U.S.C. 553.
\11\ 5 U.S.C. 553(b)(B).
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The agencies believe that the public interest is best served by
implementing the interim 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 CECL transition rule was adopted by the agencies to address
concerns that despite adequate capital planning, uncertainty about the
economic environment at the time of CECL 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 interim final
[[Page 17728]]
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.\12\ Because the
rules relieve a restriction, the interim final rule is exempt from the
APA's delayed effective date requirement.\13\ Additionally, the
agencies find good cause to publish the interim 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.
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\12\ 5 U.S.C. 553(d).
\13\ 5 U.S.C. 553(d)(1).
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While the agencies believe that there is good cause to issue the
rule without advance notice and comment and with an immediate effective
date, the agencies are interested in the views of the public and
requests comment on all aspects of the interim final rule.
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.\14\ 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.\15\
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\14\ 5 U.S.C. 801 et seq.
\15\ 5 U.S.C. 801(a)(3).
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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.\16\
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\16\ 5 U.S.C. 804(2).
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For the same reasons set forth above, the agencies are adopting the
interim 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.\17\ In light of
current market uncertainty, the agencies believe that delaying the
effective date of the rule would be contrary to the public interest.
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\17\ 5 U.S.C. 808.
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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. The interim final rule affects the
agencies' current information collections for 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 Board has reviewed this interim final rule pursuant to authority
delegated by the OMB.
While this interim final rule contains no information collection
requirements, the agencies have determined that there are changes that
should be made to the Call Reports and the FFIEC 101 as a result of
this rulemaking. Although there may be a substantive change resulting
from the temporary delay of recognition of credit loss allowances in
regulatory capital for purposes of the Call Reports and the FFIEC 101,
the change should be minimal and result in a zero net change in hourly
burden under the agencies' information collections. Submissions will,
however, be made by the agencies to OMB. The changes to the Call
Reports, the FFIEC 101 and their related instructions will be addressed
in a separate Federal Register notice.
However, the Board has temporarily revised certain reporting forms
to accurately reflect various aspects of this interim final rule. These
reporting forms are the Consolidated Financial Statements for Holding
Companies (FR Y-9C; OMB No. 7100-0128) and Capital Assessments and
Stress Testing Reports (FR Y-14A/Q/M; OMB No. 7100-0341). On June 15,
1984, OMB delegated to the Board authority under the PRA to temporarily
approve a revision to a collection of information without providing
opportunity for public comment if the Board determines that a change in
an existing collection must be instituted quickly and that public
participation in the approval process would defeat the purpose of the
collection or substantially interfere with the Board's ability to
perform its statutory obligation.
The Board's delegated authority requires that the Board, after
temporarily approving a collection, solicit public comment to extend
the information collections for a period not to exceed three years.
Therefore, the Board is inviting comment to extend each of these
information collections for three years, with the revisions discussed
below.
The Board invites public comment on the following information
collections, which are being reviewed under authority delegated by the
OMB under the PRA. Comments must be submitted on or before June 1,
2020. Comments are invited on the following:
a. Whether the collections of information are necessary for the
proper performance of the Board's functions, including whether the
information has practical utility;
b. The accuracy of the Board's estimate of the burden of the
information collections, including the validity of the methodology and
assumptions used;
c. Ways to enhance the quality, utility, and clarity of the
information to be collected;
d. Ways to minimize the burden of information collections on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
e. Estimates of capital or startup costs and costs of operation,
maintenance, and purchase of services to provide information.
At the end of the comment period, the comments and recommendations
received will be analyzed to determine the extent to which the Board
should modify the collections.
[[Page 17729]]
Final Approval Under OMB Delegated Authority of the Temporary Revision
of, and Solicitation of Comment To Extend for Three Years, With
Revision, 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: March 31, 2020.
Frequency: Quarterly, semiannually, and annually.
Respondents: Bank holding companies, savings and loan holding
companies,\18\ securities holding companies, and U.S. intermediate
holding companies (collectively, HCs).
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\18\ An 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.
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Estimated number of respondents: FR Y-9C (non-advanced approaches
CBLR HCs with less than $5 billion in total assets): 7; 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 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): 29.14 hours; FR Y-9C (non-advanced approaches CBLR
HCs with $5 billion or more in total assets): 35.11; FR Y-9C (non-
advanced approaches, non CBLR HCs, with less than $5 billion in total
assets): 40.98; FR Y-9C (non-advanced approaches, non CBLR, HCs with $5
billion or more in total assets): 46.95 hours; FR Y-9C (advanced
approaches HCs): 48.59 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): 8,276 hours; FR Y-9C (non-advanced approaches CBLR
HCs with $5 billion or more in total assets): 4,915; FR Y-9C (non-
advanced approaches non CBLR HCs with less than $5 billion in total
assets): 13,769; FR Y-9C (non-advanced approaches non CBLR HCs with $5
billion or more in total assets): 28,921 hours; FR Y-9C (advanced
approaches HCs): 3,693 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 (non-advanced approaches HCs with less than $5 billion in
total assets): 620 hours; FR Y-9C (non-advanced approaches HCs with $5
billion or more in total assets): 756 hours; FR Y-9C (advanced
approaches HCs): 76 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 commercial
banks.\19\ 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.\20\
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\19\ 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).
\20\ 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.
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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.\21\ The report consists of standardized
financial statements.
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\21\ A top-tier HC may submit a separate FR Y-9LP on behalf of
each of its lower-tier HCs.
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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. 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 Y-9 family of reports on bank holding companies
(``BHCs'') pursuant to section 5 of the Bank Holding Company Act (``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)); on U.S. intermediate holding companies
(``U.S. IHCs'') 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
Wall Street Reform and Consumer Protection Act (``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 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, Schedule HI's memoranda item 7(g),
Schedule HC-P's item 7(a), and Schedule HC-P's item 7(b) are considered
confidential commercial and financial information under exemption 4 of
the Freedom of Information Act (``FOIA''), (5 U.S.C. 552(b)(4)), as is
Schedule HC's memorandum item 2.b. for both the FR Y-9C and FR Y-9SP
reports.
Aside from the data items described above, the remaining data items
on the FR Y-9 reports are 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
[[Page 17730]]
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 that the instructions, to the FR Y-9C, FR Y-9LP, FR
Y-9SP, and FR Y-9ES reports, each respectively direct a financial
institution to retain the workpapers 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 may be considered
confidential pursuant to exemption 8 of the FOIA (5 U.S.C. 552(b)(8)).
In addition, the financial institution's workpapers 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)).
Current Actions: The Board has temporarily revised the instructions
to FR Y-9C report to accurately reflect the CECL transition provision
as modified by this interim final rule. Specifically, the Board has
temporarily revised the instructions to the following FR Y-9C, Schedule
HC-R, Part I, line items:
Item 2 (Retained earnings),
Item 2.a (CECL transition election in effect as of the
quarter-end report date?),
Item 15.a (Less: DTAs arising from temporary differences
that could not be realized through net operating loss carrybacks, net
of related valuation allowances and net of DTLs that exceed the 25
percent of line 12,
Item 15.b (Less: DTAs arising from temporary differences
that could not be realized through net operating loss carrybacks, net
of related valuation allowances and net of DTLs, that exceed the 10
percent common equity tier 1 capital deduction threshold,
Item 27 (Average total consolidated assets),
Item 40 (a) (Allowance for loan and lease losses
includable in tier 2 capital), and
Item 40 (b) (Advanced approaches holding companies that
exit parallel run only): Eligible credit reserves includable in tier 2
capital.
as well as FR Y-9C, Schedule HC-R, Part II, Item 8 (All other assets).
The Board has determined that the revisions to the FR Y-9C described
above must be instituted quickly and that public participation in the
approval process would defeat the purpose of the collection of
information, as delaying the revisions would result in the collection
of inaccurate information, and would interfere with the Board's ability
to perform its statutory duties.
The Board also invites comment to extend the FR Y-9 for three
years, with the revisions described above.
(2) Report title: Capital Assessments and Stress Testing Reports.
Agency form number: FR Y-14A/Q/M.
OMB control number: 7100-0341.
Effective date: December 31, 2019.
Frequency: Annually, quarterly, and monthly.
Respondents: These collections of information are applicable to
BHCs, U.S. IHCs, and savings and loan holding companies (SLHCs) \22\
(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.
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\22\ 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 (November 1, 2019).
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Estimated number of respondents: FR Y-14A/Q: 36; FR Y-14M: 34.\23\
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\23\ 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.
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Estimated average hours per response: FR Y-14A: 1,085 hours; FR Y-
14Q: 1,920 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:
276,480 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 \24\ 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.\25\
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\24\ 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.
\25\ 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.
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The quarterly FR Y-14Q collects granular data on various asset
classes, including loans, securities, trading assets, and PPNR 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[hyphen]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. 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.
Current actions: The Board has temporarily revised the instructions
to FR Y-14A report to accurately reflect
[[Page 17731]]
the CECL transition provision as modified by this interim final rule.
Specifically, the Board has temporarily revised the FR Y-14A general
instructions, as well as the instructions to the following FR Y-14A
schedules or line items:
Schedule A.1.d (Capital);
Schedule A.1.d, Line item 20 (Retained earnings);
Schedule A.1.d, Line item 39 (DTAs arising from temporary
differences that could not be realized through net operating loss
carrybacks, net of related valuation allowances and net of DTLs, that
exceed the 10 percent common equity tier 1 capital deduction
threshold);
Schedule A.1.d, Line item 54 (Allowance for loan and lease
losses includable in tier 2 capital);
Schedule A.1.d, Line item 77 (DTAs arising from temporary
differences that could not be realized through net operating loss
carrybacks, net of related valuation allowances and net of DTLs); and
Collection of Supplemental CECL Information, Line Item 2
(Institutions applying the CECL transition provision),
In addition, the Board has delayed the due date for the December
31, 2019, FR Y-14A, Collection of Supplemental CECL Information from
April 6, 2020, to May 11, 2020, to correspond with the submission date
for the March 31, 2020, FR Y-9C report. The Board has determined that
the revisions to the FR Y-14A/Q/M reports described above must be
instituted quickly and that public participation in the approval
process would defeat the purpose of the collection of information, as
delaying the revisions would result in the collection of inaccurate
information, and would interfere with the Board's ability to perform
its statutory duties.
The Board also invites comment to extend the FR Y-14A/Q/M for three
years, with the revisions described above.
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 EGRRCPA, 12 U.S.C.
5365 note, provides that the Board has the authority to establish
enhanced 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.'' \26\
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).
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\26\ 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 (March 27, 2014).
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D. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) \27\ requires an agency to
consider whether the rules it proposes will have a significant economic
impact on a substantial number of small entities.\28\ 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). As discussed
previously, consistent with section 553(b)(B) of the APA, the agencies
have determined for good cause that general notice and opportunity for
public comment is impracticable and contrary to the public's interest,
and therefore the agencies are not issuing a notice of proposed
rulemaking. Accordingly, the agencies have concluded that the RFA's
requirements relating to initial and final regulatory flexibility
analysis do not apply. Nevertheless, the agencies seek comment on
whether, and the extent to which, the interim final rule would affect a
significant number of small entities.
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\27\ 5 U.S.C. 601 et seq.
\28\ 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.
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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),\29\ in determining the effective
date and administrative compliance requirements for new regulations
that impose additional reporting, disclosure, or other requirements on
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.\30\ For the reasons described
above, the agencies find good cause exists under section 302 of RCDRIA
to publish this interim final rule with an immediate effective date.
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\29\ 12 U.S.C. 4802(a).
\30\ 12 U.S.C. 4802.
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As such, the final rule will be effective on immediately.
Nevertheless, the agencies seek comment on RCDRIA.
F. Plain Language
Section 722 of the Gramm-Leach-Bliley Act \31\ 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 interim final rule in a simple
and straightforward manner. The agencies invite comments on whether
there are additional steps it could take to make the rule easier to
understand. For example:
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\31\ Public Law 106-102, section 722, 113 Stat. 1338, 1471
(1999).
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Have we organized the material to suit your needs? If not,
how could this material be better organized?
Are the requirements in the regulation clearly stated? If
not, how could the regulation be more clearly stated?
Does the regulation contain language or jargon that is not
clear? If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation
[[Page 17732]]
easier to understand? If so, what changes to the format would make the
regulation easier to understand?
What else could we do to make the regulation easier to
understand?
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). Therefore, because the OCC has found
good cause to dispense with notice and comment for this interim final
rule, the OCC has not prepared an economic analysis of the 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 OCC amends chapter I
of title 12 of the Code of Federal Regulations as follows:
PART 3--CAPITAL ADEQUACY STANDARDS
0
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, and 5412(b)(2)(B).
Subpart G--Transition Provisions
0
2. Amend Sec. 3.301 by:
0
a. Revising paragraphs (a)(1) and (2), (b)(1), and (c)(1) introductory
text;
0
b. Redesignating paragraphs (c)(3) and (4) as paragraphs (e) and (f);
0
c. Adding paragraph (d);
0
d. Adding headings for newly redesignated paragraphs (e) and (f);
0
e. In newly redesignated paragraph (f) introductory text, removing
``paragraph'' and adding ``paragraph (f)'' in its place; and
0
f. Further redesignating newly redesignated paragraphs (f)(i) and (ii)
as paragraphs (f)(1) and (2).
The revisions and addition read as follows:
Sec. 3.301 Current Expected Credit Losses (CECL) transition.
(a) * * *
(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) A national bank or Federal savings association that is required
to use CECL for regulatory reporting purposes that intends 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 is required to
use CECL for regulatory reporting purposes.
* * * * *
(b) * * *
(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; or, for the 2020 transition 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 U.S. GAAP (as in effect January 1, 2020),
or the first day of the quarter in which the national bank or Federal
savings association files regulatory reports that include CECL.
* * * * *
(c) * * *
(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:
* * * * *
(d) 2020 CECL transition provision. A national bank or Federal
savings association that was required to adopt CECL for accounting
purposes under U.S. GAAP (as in effect on January 1, 2020) as of the
first day of a fiscal year that begins during the 2020 calendar year,
and that makes the election described in paragraph (a)(1) of this
section, may use the transitional amounts and adjusted transitional
amounts in paragraph (d)(1) of this section with the 2020 CECL
transition 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 that did not make the election described
in paragraph (a)(1) of this section because it did not record 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 adopted CECL 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.
(1) Definitions. For purposes of the 2020 CECL transition
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.
(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
[[Page 17733]]
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 made the election
described in paragraph (a)(1) of this section in its first Call Report
filed during the 2020 calendar year that reflects CECL adoption 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 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 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.
(ii) An advanced approaches national bank or Federal savings
association that has made the election described in paragraph (a)(1) of
this section in its first Call Report filed during 2020 may make the
following additional adjustments to its calculation of 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 has
received notification from the OCC pursuant to Sec. 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.
(e) Eligible credit reserves shortfall. * * *
(f) Business combinations. * * *
Board of Governors of the Federal Reserve System
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the preamble, the Board amends chapter
II of title 12 of the Code of Federal Regulations as follows:
PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)
0
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-l, 1831w, 1835, 1844(b), 1851, 3904,
3906-3909, 4808, 5365, 5368, 5371, and 5371 note.
Subpart G--Transition Provisions
0
4. Revise Sec. 217.301 to read as follows:
[[Page 17734]]
Sec. 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) A Board-regulated institution that is required to use CECL when
filing its Call Report or FR Y-9C that intends 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 is required to use CECL for regulatory
reporting purposes.
(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; or,
for the 2020 transition 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
U.S. GAAP (as in effect on January 1, 2020), or the first day of the
quarter in which the Board-regulated institution files regulatory
reports that include CECL.
(2) CECL transitional amount means the decrease 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 increase 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 increase
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:
(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
(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 Board-regulated institution must
make the following additional adjustments to its calculation of
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
(ii) An advanced approaches Board-regulated institution that has
completed the parallel run process and has received notification from
the Board pursuant to Sec. 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) Calculation of the five-year CECL transition provision. A
Board-regulated institution that was required to adopt CECL for
accounting purposes under U.S. GAAP (as in effect January 1, 2020) as
of the first day of a fiscal year that begins during the 2020 calendar
year, and that makes the election described in paragraph (a)(1) of this
section, may use the transitional amounts and modified
[[Page 17735]]
transitional amounts in paragraph (d)(1) of this section with the 2020
CECL transition 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 that did not make the election described in paragraph
(a)(1) of this section because it did not record 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 adopted CECL
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 of FR Y-9C filed for
the same quarter.
(1) Definitions. For purposes of the 2020 CECL transition
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 .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 .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 made the election described in paragraph
(a)(1) of this section in a first Call Report or FR Y-9C filed during
the 2020 calendar year 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 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
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 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 Board-regulated institution that has
made the election described in paragraph (a)(1) of this section in its
first Call Report or FR Y-9C filed during 2020 may make the following
additional adjustments to its calculation of 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 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 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 has received notification from
the Board pursuant to Sec. 217.121(d) must decrease amounts of
eligible credit reserves by one-hundred percent of its eligible
[[Page 17736]]
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 has received notification from the Board pursuant to Sec.
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 (or modified 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 joint preamble, chapter III of
title 12 of the Code of Federal Regulations is amended as follows:
PART 324--CAPITAL ADEQUACY OF FDIC-SUPERVISED INSTITUTIONS
0
5. The authority citation for part 324 continues 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).
0
6. Revise Sec. 324.301 to read as follows:
Sec. 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) An FDIC-supervised institution that is required to use CECL for
regulatory reporting purposes that intends 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 FDIC-supervised institution
after it is required to use CECL for regulatory reporting purposes.
(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, s 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 transition 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 U.S. GAAP (as in effect January 1, 2020), or the first
day of the quarter in which the FDIC-supervised institution files
regulatory reports that include CECL.
(2) CECL transitional amount means the decrease 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's adoption of CECL.
(3) DTA transitional amount means the increase 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 increase
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:
(i) Increase retained earnings by seventy-five percent of its CECL
transitional amount during the first year of the transition period,
increase
[[Page 17737]]
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
(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 FDIC-supervised institution must
make the following additional adjustments to its calculation of
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
(ii) An advanced approaches FDIC-supervised institution that has
completed the parallel run process and has received notification from
the FDIC pursuant to Sec. 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) Calculation of the five-year CECL transition provision. An
FDIC-supervised institution that was required to adopt CECL for
accounting purposes under U.S. GAAP (as in effect January 1, 2020) as
of the first day of a fiscal year that begins during the 2020 calendar
year, and that makes the election described in paragraph (a)(1) of this
section, may use the transitional amounts and modified transitional
amounts in paragraph (d)(1) of this section with the 2020 CECL
transition 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. A FDIC supervised-institution that did not
make the election described in paragraph (a)(1) of this section because
it did not record 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 adopted CECL may use the transition provision in
this paragraph (d) if it has a positive adjusted 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.
(1) Definitions. For purposes of the 2020 CECL transition
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 .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 .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 FDIC-supervised institution
adopts CECL, multiplied by 0.25, plus the AACL transitional amount.
(2) Calculation of 2020 CECL transition provision. (i) An FDIC-
supervised institution that has made the election described in
paragraph (a)(1) of this section in its a Call Report filed during the
2020 calendar year 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 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
[[Page 17738]]
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
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 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.
(ii) An advanced approaches FDIC-supervised institution that has
made the election described in paragraph (a)(1) of this section in its
first Call Report filed for the fiscal year that begins during the 2020
calendar year may make the following additional adjustments to its
calculation of 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 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 CECL transitional amount during the
fifth year of the transition period; and
(B) An advanced approaches FDIC-supervised institution that has
completed the parallel run process and has received notification from
the FDIC pursuant to Sec. 324.121(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
FDIC-supervised institution that has completed the parallel run process
and has received notification from the FDIC pursuant to Sec.
324.121(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 (or modified 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 an FDIC-supervised institution where one
or both FDIC-supervised institutions have elected the treatment
described in this section:
(1) If the acquirer FDIC-supervised institution (as determined
under GAAP) elected the treatment described in this section, the
acquirer FDIC-supervised 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 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 FDIC-supervised institution.
Morris R. Morgan,
First Deputy Comptroller, Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System.
Ann E. Misback,
Secretary of the Board.
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on or about March 26, 2020.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2020-06770 Filed 3-30-20; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P