[Federal Register Volume 85, Number 190 (Wednesday, September 30, 2020)]
[Rules and Regulations]
[Pages 61577-61594]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19782]
[[Page 61577]]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 3
[Docket ID OCC-2020-0010]
RIN 1557-AE82
FEDERAL RESERVE SYSTEM
12 CFR Part 217
[Regulation Q; Docket No. R-1708]
RIN 7100-AF82
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 324
RIN 3064-AF42
Regulatory Capital Rule: Revised Transition of the Current
Expected Credit Losses Methodology for Allowances
AGENCY: Office of the Comptroller of the Currency, Treasury; the Board
of Governors of the Federal Reserve System; and the Federal Deposit
Insurance Corporation.
ACTION: Final rule.
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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 adopting a final
rule that delays the estimated impact on regulatory capital stemming
from the implementation of Accounting Standards Update No. 2016-13,
Financial Instruments--Credit Losses, Topic 326, Measurement of Credit
Losses on Financial Instruments (CECL). The final rule provides banking
organizations that implement CECL during the 2020 calendar year the
option to delay for two years an estimate of CECL's effect on
regulatory capital, relative to the incurred loss methodology's effect
on regulatory capital, followed by a three-year transition period. The
agencies are providing this relief to allow these banking organizations
to better focus on supporting lending to creditworthy households and
businesses in light of recent strains on the U.S. economy as a result
of the coronavirus disease 2019, while also maintaining the quality of
regulatory capital. This final rule is consistent with the interim
final rule published in the Federal Register on March 31, 2020, with
certain clarifications and minor adjustments in response to public
comments related to the mechanics of the transition and the eligibility
criteria for applying the transition.
DATES: The final rule is effective September 30, 2020.
FOR FURTHER INFORMATION CONTACT:
OCC: Jung Sup Kim, Capital and Regulatory Policy, (202) 649-6528;
or Kevin Korzeniewski, Counsel, Chief Counsel's Office, (202) 649-5490,
or for persons who are deaf or hearing impaired, TTY, (202) 649-5597,
Office of the Comptroller of the Currency, 400 7th Street SW,
Washington, DC 20219.
Board: Constance M. Horsley, Deputy Associate Director, (202) 452-
5239; Juan C. Climent, Assistant Director, (202) 872-7526; Andrew
Willis, Lead Financial Institution Policy Analyst, (202) 912-4323; or
Michael Ofori-Kuragu, Senior Financial Institution Policy Analyst II,
(202) 475-6623, Division of Supervision and Regulation; or Benjamin W.
McDonough, Assistant General Counsel, (202) 452-2036; David W.
Alexander, Senior Counsel, (202) 452-2877; or Jonah Kind, Senior
Attorney, (202) 452-2045, Legal Division, Board of Governors of the
Federal Reserve System, 20th and C Streets NW, Washington, DC 20551.
For the hearing impaired only, Telecommunication Device for the Deaf
(TDD), (202) 263-4869.
FDIC: Bobby R. 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. Summary of Comments to the Interim Final Rule
III. The Final Rule
A. Approximating the Impact of CECL
B. Mechanics of the 2020 CECL Transition Provision
C. 2020 CECL Adopters
D. Transitions Applicable to Advanced Approaches Banking
Organizations
E. Other Considerations
F. Technical Amendments to the Interim Final Rule
IV. Impact Assessment
V. Administrative Law Matters
A. Administrative Procedure Act
B. Congressional Review Act
C. Paperwork Reduction Act
D. Regulatory Flexibility Act
E. Riegle Community Development and Regulatory Improvement Act
of 1994
F. Plain Language
G. Unfunded Mandates Reform Act
I. Background
In 2016, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) No. 2016-13, Financial Instruments--
Credit Losses, Topic 326, Measurement of Credit Losses on Financial
Instruments.\1\ The update resulted in significant changes to credit
loss accounting under U.S. generally accepted accounting principles
(GAAP). The revisions to credit loss accounting under GAAP included the
introduction of the current expected credit losses methodology (CECL),
which replaces the incurred loss methodology for financial assets
measured at amortized cost. For these assets, CECL requires banking
organizations \2\ to recognize lifetime expected credit losses and to
incorporate reasonable and supportable forecasts in developing the
estimate of lifetime expected credit losses, while also maintaining the
current requirement that banking organizations consider past events and
current conditions.
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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
GAAP, including CECL (2019 CECL rule).\3\ The
[[Page 61578]]
2019 CECL rule revised the agencies' regulatory capital rule (capital
rule),\4\ stress testing rules, and regulatory disclosure requirements
to reflect CECL, and made conforming amendments to other regulations
that reference credit loss allowances. The 2019 CECL rule applies to
banking organizations that file regulatory reports for which the
accounting principles are uniform and consistent with GAAP,\5\
including banking organizations that are subject to the capital rule or
stress testing requirements.
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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 includes a transition provision that allows
banking organizations to phase in over a three-year period the day-one
adverse effects of CECL on their regulatory capital ratios. The
agencies intend for the transition provision to address concerns that
despite adequate capital planning, unexpected economic conditions at
the time of CECL adoption could result in higher-than-anticipated
increases in allowances. This increase in allowances is expected
largely because CECL requires banking organizations to consider current
and reasonable and supportable forecasts of future economic conditions
to estimate credit loss allowances.
On March 31, 2020, as part of efforts to address the disruption of
economic activity in the United States caused by the spread of
coronavirus disease 2019 (COVID-19), the agencies adopted a second CECL
transition provision through an interim final rule.\6\ This transition
provision provides banking organizations that were required to adopt
CECL for purposes of GAAP (as in effect January 1, 2020), for a fiscal
year that begins during the 2020 calendar year, the option to delay for
up to two years an estimate of CECL's effect on regulatory capital,
followed by a three-year transition period (i.e., a five-year
transition period in total). The agencies provided this relief in
response to the additional operational challenges and resource burden
of implementing CECL amid the uncertainty caused by recent strains on
the U.S. economy so that adopting banking organizations may better
focus on supporting lending to creditworthy households and businesses,
while maintaining the quality of regulatory capital and reducing the
potential for competitive inequities across banking organizations.
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\6\ 85 FR 17723 (March 31, 2020).
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Under the interim final rule, an eligible banking organization
would make an election to use the 2020 CECL transition provision in its
first Consolidated Reports of Condition and Income (Call Report) or
Consolidated Financial Statements for Holding Companies (FR Y-9C) filed
during the 2020 calendar year after it meets the eligibility
requirements. The interim final rule provides electing banking
organizations with a methodology for delaying the effect on regulatory
capital of an estimated increase in the allowances for credit losses
(ACL) that can be attributed to the adoption of CECL, relative to an
estimated increase in the allowance for loan and lease losses (ALLL)
that would occur for banking organizations operating under the incurred
loss methodology. The interim final rule does not replace the three-
year transition provision in the 2019 CECL rule, which remains
available to any banking organization at the time that it adopts CECL.
Banking organizations that were required to adopt CECL during the 2020
calendar year have the option to elect the three-year transition
provision contained in the 2019 CECL rule or the 2020 CECL transition
provision contained in the interim final rule, beginning with the March
31, 2020, Call Report or FR Y-9C.
II. Summary of Comments to the Interim Final Rule
The agencies received six public comments on the interim final rule
from banking organizations and interest groups. Commenters supported
the objectives of the interim final rule because it provides banking
organizations additional flexibility to lend to creditworthy borrowers
in the current economic environment, without imposing undue regulatory
burden. However, several commenters suggested that the regulatory
capital relief provided in the interim final rule is insufficient,
especially given the current economic downturn. Some of these
commenters asserted either that banking organizations should be
permitted to add back a larger proportion of the ACL (temporarily or
permanently) to common equity tier 1 capital or that the methodology
for calculating the add-back should address certain commenters'
concerns regarding pro-cyclicality and differences in credit
portfolios. One commenter asked the FASB and the agencies to allow
banking organizations of all sizes the option to defer the
implementation of CECL until 2025, given current economic
uncertainties. This commenter asserted that without a longer delay,
community banking organizations may need to maintain loan portfolios
with a credit profile that minimizes the regulatory capital volatility
caused by CECL, rather than loan portfolios that meet the credit needs
of the community. One commenter suggested that the agencies reevaluate
whether to increase the amount of ACL includable in tier 2 capital on a
permanent basis to address the commenter's concerns regarding pro-
cyclicality and CECL.
III. The Final Rule
The final rule is consistent with the interim final rule with some
clarifications and adjustments related to the calculation of the
transitions and the eligibility criteria for using the 2020 CECL
transition provision, as discussed below.
A. Approximating the Impact of CECL
As discussed in the Supplementary Information to the interim final
rule, the agencies considered different ways for determining the
portion of credit loss allowances attributable to CECL that is eligible
for transitional regulatory capital relief. To best capture the effects
of CECL on regulatory capital, it would be necessary for a banking
organization to calculate the effect on retained earnings of measuring
credit loss allowances using both the incurred loss methodology and
CECL. This approach, however, would require a banking organization to
maintain the equivalent of two separate loss-provisioning processes.
For many banking organizations that have adopted CECL, it would be
burdensome to track credit loss allowances under both CECL and the
incurred loss methodology, due to significant CECL-related changes
already incorporated in internal systems or third-party vendor systems
in place of elements of the incurred loss methodology. Further, if
banking organizations were to maintain separate loss provisioning
processes, there would also be burden associated with having to subject
the incurred loss methodology to internal controls and supervisory
oversight, which may in some respects differ from the controls and
oversight over CECL. One commenter agreed that maintaining separate
ongoing calculations of loan losses under two processes would entail
significant burden.
To address concerns regarding burden and to promote a consistent
approach across electing banking organizations, the interim final rule
provided a
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uniform approach for estimating the effect of CECL during the first two
years of the five-year transition period. Specifically, the interim
final rule introduced a 25 percent scaling factor that approximates the
average after-tax provision for credit losses attributable to CECL,
relative to the incurred loss methodology, in a given reporting
quarter.
Some commenters asserted that the 25 percent scaling factor was too
low and that it was based on forecasts of benign economic conditions
that existed at the beginning of 2020. Further, some commenters stated
that the scaling factor could lead to disparate impacts on the
availability of credit to different types of borrowers. These
commenters suggested that a 100 percent add-back of incremental CECL
allowances to regulatory capital would be appropriate for the duration
of the transition period or until a longer-term solution is developed
by the agencies for addressing potential unintended consequences of
CECL on regulatory capital requirements. Other commenters stated that
the regulatory capital relief provided through the interim final rule
should be permanent to acknowledge the fundamental changes that CECL
has introduced to credit loss allowance practices, to avoid the need
for the agencies to intervene each time the economy contracts, and to
promote credit availability in all economic conditions.
The agencies also received several comments on the precision of the
25 percent scaling factor. One commenter supported the interim final
rule's uniform scaling approach because it does not require banking
organizations to calculate provisions under both the CECL and incurred
loss methodologies, noting that such a requirement would have been
labor-intensive and costly. Another commenter supported the objective
of the agencies to make the regulatory capital impact of near-term
accounting for credit losses under CECL through the crisis roughly
comparable to the regulatory capital impact under the incurred loss
methodology. However, this commenter asserted that a dynamic scaling
factor that increases over time to 50 percent and then reduces to zero
percent over a nine quarter period would achieve this objective more
effectively and accurately.
After considering these comments, the agencies have decided to
retain the 25 percent scaling factor provided in the interim final
rule. In developing an approach for adding back an amount of ACL
measured under CECL to regulatory capital, the agencies have provided a
measure of capital relief for banking organizations while not creating
undue burden. In the agencies' view, this approach should also consider
the fundamental differences between CECL and the incurred loss
methodology. Both CECL and the incurred loss methodology take into
account historical credit loss experience and current conditions when
estimating credit loss allowances; however, CECL also requires
consideration of the effect of reasonable and supportable forecasts on
collectability. This naturally causes a difference in the timing of the
build-up of allowances. This difference in timing makes it more
difficult to calibrate a more precise scaling factor that changes
during a transition period because establishing the increases and
decreases in the scaling factor that should apply for particular
quarters during this period would require the agencies to anticipate
the peaks and troughs of the economic crisis. Further, the amount of
allowances required under CECL as compared to the incurred loss
methodology is affected by the composition of a banking organization's
credit exposures subject to CECL. As a result, developing a scaling
factor that changes over the course of a transition period could
exacerbate inequities among banking organizations whose credit
exposures might be weighted toward particular loan types. As noted in
the Supplemental Information to the interim final rule, the agencies
believe that the 25 percent scaling factor provides a reasonable
estimate of the portion of the increase in allowances related to CECL
relative to the incurred loss methodology.\7\ In addition, the uniform
calibration promotes competitive equity in the current economic
environment between electing banking organizations and those banking
organizations that have not yet adopted CECL.
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\7\ See Loudis, Bert and Ben Ranish. (2019) ``CECL and the
Credit Cycle.'' Finance and Economics Discussion Series Working
Paper 061. Available at: https://www.federalreserve.gov/econres/feds/files/2019061pap.pdf and Covas, Francisco and William Nelson.
``Current Expected Credit Loss: Lessons from 2007-2009.'' (2018)
Banking Policy Institute Working Paper. Available at: https://bpi.com/wpcontent/uploads/2018/07/CECL_WP-2.pdf; the agencies
reviewed data from public securities filings of various large
banking organizations. These organizations reported allowances and
provisions under CECL, on a weighted-average basis, approximately 30
percent higher on a pre-tax basis and 25 percent higher on an after-
tax basis. The agencies chose a scalar closer to the after-tax
median to avoid additional burden involved with making quarterly tax
adjustments throughout the transition period.
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B. Mechanics of the 2020 CECL Transition Provision
The Supplementary Information to the interim final rule states that
an electing banking organization must calculate transitional amounts
for the following items: Retained earnings, temporary difference
deferred tax assets (DTAs), and credit loss allowances eligible for
inclusion in regulatory capital. For each of these items, the
transitional amount is equal to the difference between the electing
banking organization's closing balance sheet amount for the fiscal
year-end immediately prior to its adoption of CECL (pre-CECL amount)
and its balance sheet amount as of the beginning of the fiscal year in
which it adopts CECL (post-CECL amount) (i.e., day-one transitional
amounts). To calculate the transitional amounts for these items, an
electing banking organization must first calculate, as provided in the
2019 CECL rule, the CECL transitional amount, the adjusted allowances
for credit losses (AACL) transitional amount, and the DTA transitional
amount. The CECL transitional amount is equal to the difference between
an electing banking organization's pre-CECL and post-CECL amounts of
retained earnings at adoption. The AACL transitional amount is equal to
the difference between an electing banking organization's pre-CECL
amount of ALLL and its post-CECL amount of AACL at adoption. The DTA
transitional amount is the difference between an electing banking
organization's pre-CECL amount and post-CECL amount of DTAs at adoption
due to temporary differences.
The agencies received several comments from banking organizations
requesting clarification about how the day-one changes to the CECL
transitional amount, DTA transitional amount, and AACL transitional
amount should be calculated when an electing banking organization
experiences a day-one increase in retained earnings. To the extent
there is a day-one change for these items, an electing banking
organization would calculate each transitional amount as a positive or
negative number. For example, an electing banking organization with an
increase in retained earnings upon adopting CECL would treat this
amount as a negative value when calculating its modified CECL
transitional amount for purposes of the 2020 CECL transition.\8\
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\8\ See 85 FR 29839 (May 19, 2020).
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The agencies adopted the 2020 CECL transition provision to mitigate
the adverse effect of CECL on regulatory capital based on an estimated
difference between allowances under the incurred loss methodology and
CECL amid the uncertainty caused by recent strains on
[[Page 61580]]
the U.S. economy. To help achieve this goal, the final rule revises the
capital rule to clarify that an electing banking organization is not
required to apply the transitional amounts in any quarter in which it
would not reflect a positive modified CECL transitional amount (i.e.,
when applying the transition would result in a decrease to retained
earnings for regulatory capital).\9\ During quarters in which a banking
organization does not calculate a positive modified CECL transitional
amount, the electing banking organization would not reflect any of the
transitional amounts in its regulatory capital calculations. However,
the banking organization subsequently could resume applying the
transitional amounts in the remaining quarters of the transition period
if the banking organization calculates a positive modified CECL
transitional amount during any of those quarters. The agencies are
incorporating this clarification in this final rule. The agencies also
are adopting as final all other aspects of the interim final rule
related to the calculation of the transitional amounts.
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\9\ See 12 CFR 3.100(d) (OCC); 12 CFR 217.100(d) (Board); 12 CFR
324.100(d) (FDIC).
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Under the final rule, an electing banking organization must adjust
several key inputs to regulatory capital for purposes of the 2020 CECL
transition, in addition to the day-one transitional amounts. In
adjusting regulatory capital inputs, first an electing banking
organization must increase retained earnings by a modified CECL
transitional amount. The modified CECL transitional amount is adjusted
to reflect changes in retained earnings due to CECL that occur during
the first two years of the five-year transition period. The change in
retained earnings due to CECL is calculated by taking the change in
reported AACL relative to the first day of the fiscal year in which
CECL was adopted and applying a scaling multiplier of 25 percent during
the first two years of the transition period.
Second, an electing banking organization must decrease AACL by the
modified AACL transitional amount. The modified AACL transitional
amount reflects an estimate of the change in credit loss allowances
attributable to CECL that occurs during the first two years of the
five-year transition period. This estimated change in credit loss
allowances due to CECL is calculated with the same method used for the
modified CECL transitional amount.
Two additional regulatory capital inputs--temporary difference DTAs
and average total consolidated assets--are also subject to adjustments.
Reported average total consolidated assets for purposes of the leverage
ratio is increased by the amount of the modified CECL transitional
amount, and temporary difference DTAs are decreased by the DTA
transitional amount as under the 2019 CECL rule. The agencies received
one comment pertaining to the treatment of temporary difference DTAs.
This commenter generally supported the approach for calculating the DTA
transitional amount, but noted that not applying a dynamic adjustment
to the DTA transitional amount during the first eight quarters of the
transition could have a material impact on risk-weighted assets for
particularly large banking organizations. Because revising the
calculation for DTAs in a dynamic fashion, as suggested by commenters,
likely would introduce undue complexity into the transition
calculation, the final rule retains the calculation of the DTA
transitional amount in the interim final rule, without revision.
Consistent with the interim final rule, under the final rule, the
modified CECL and modified AACL transitional amounts are calculated on
a quarterly basis during the first two years of the transition period.
An electing banking organization reflects those modified transitional
amounts, which includes 100 percent of the day-one impact of CECL plus
a portion of the difference between AACL reported in the most recent
regulatory report and AACL as of the beginning of the fiscal year that
the banking organization adopts CECL, in transitional amounts applied
to regulatory capital calculations. For the reasons described above, an
electing banking organization would not apply the transitional amounts
in any quarter in which the banking organization would not report a
positive modified CECL transitional amount. After two years, the
cumulative transitional amounts become fixed and are phased out of
regulatory capital. The phase out of the transitional amounts from
regulatory capital occurs over the subsequent three-year period: 75
percent are recognized in year three; 50 percent are recognized in year
four; and 25 percent are recognized in year five. Beginning in year
six, the banking organization will not be able to adjust its regulatory
capital by any of the transitional amounts.
Some commenters requested that the first two years of the
transition be applied on a permanent basis. While this aspect of the
transition is generally based on the difference between lifetime
expected credit losses and incurred credit losses, the agencies adopted
the interim final rule to provide burden relief for operational
challenges resulting from the implementation of a significant change in
credit loss accounting during a shock to the economy caused by the
spread of COVID-19, not to permanently recalibrate the capital rule.
The agencies intend to propose the final key features of the Basel III
reforms related to risk-based capital requirements soon. As part of
that implementation, the agencies intend generally to preserve the
aggregate level of loss absorbency in the banking system throughout the
economic cycle and will consider the effect of CECL in their analysis.
The agencies will also continue to monitor the effect of CECL on
capital ratios.
Finally, under the final rule, an electing banking organization
applies the adjustments calculated above during each quarter of the
transition period for purposes of calculating the banking
organization's regulatory capital ratios. No adjustments are reflected
in balance sheet or income statement amounts. The electing banking
organization reflects the transition adjustment to the extent the
banking organization has reflected CECL in the Call Report or FR Y-9C,
as applicable, in that quarter. If a banking organization chooses to
revert to the incurred loss methodology pursuant to the Coronavirus
Aid, Relief, and Economic Security Act (CARES Act) \10\ in any quarter
in 2020, the banking organization would not apply any transitional
amounts in that quarter but would be allowed to apply the transitional
amounts in subsequent quarters when the banking organization resumes
use of CECL. However, a banking organization that has elected the
transition, but subsequently elects to not apply the transitional
amounts, in any quarter, would not receive any extension of the five-
year transition period.
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\10\ See Coronavirus Aid, Relief, and Economic Security Act,
Public Law 116-136, 4014, 134 Stat. 281 (Mar. 27, 2020). The CARES
Act provides banking organizations optional temporary relief from
complying with CECL ending on the earlier of (1) the termination
date of the current national emergency, declared by the President on
March 13, 2020 under the National Emergencies Act (50 U.S.C. 1601 et
seq.) concerning COVID-19, or (2) December 31, 2020.
[[Page 61581]]
Table 1--CECL Transitional Amounts to Apply to Regulatory Capital Components During the Final Three Years of the
2020 CECL Transition
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Year 3 Year 4 Year 5
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Increase retained earnings and average total consolidated 75% 50% 25%
assets by the following percentages of the modified CECL
transitional amount.........................................
Decrease temporary difference DTAs by the following
percentages of the DTA transitional amount.
Decrease AACL by the following percentages of the modified
AACL transitional amount.
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C. 2020 CECL Adopters
Consistent with the interim final rule, under the final rule,
banking organizations that are required to adopt CECL under GAAP (as in
effect January 1, 2020) in the 2020 calendar year are eligible for the
2020 CECL transition provision. A banking organization that is required
to adopt CECL under GAAP in the 2020 calendar year, but chooses to
delay use of CECL for regulatory reporting in accordance with section
4014 of the CARES Act, is also eligible for the 2020 CECL transition
provision.\11\
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\11\ The option to delay the use of CECL in accordance with
section 4014 of the CARES Act also is available for other GAAP-based
reporting.
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Many depository institution holding companies that are Securities
and Exchange Commission (SEC) filers are required to adopt CECL for
financial statement purposes under GAAP in the 2020 calendar year (in
which case they are eligible for the 2020 CECL transition provision).
Additionally, since issuing the interim final rule, supervisory
experience has shown that depository institution subsidiaries of
holding companies generally adopt CECL based on when their holding
companies are required to adopt CECL. The agencies received comments
through the supervisory process regarding CECL transition
implementation challenges that can exist when the depository
institution subsidiary of a holding company does not adopt CECL at the
same time as its holding company, which would result in maintaining
separate processes for calculating loan losses on the same exposure.
However, because these depository institution subsidiaries are not
required to adopt CECL under GAAP during the 2020 calendar year, they
would not have been eligible to use the 2020 CECL transition provision
under the interim final rule. Additionally, a banking organization that
is not required to adopt CECL under GAAP in the 2020 calendar year, but
nonetheless chooses to early adopt CECL in the 2020 calendar year would
not have been eligible to use the 2020 CECL transition provision under
the interim final rule. Due to the significant differences between CECL
and the incurred loss methodology, the agencies understand that these
banking organizations would have incurred substantial time and cost
prior to 2020 to implement CECL and it would be a significant burden to
subsequently revert to the incurred loss methodology. To address these
implementation challenges and facilitate more banking organizations to
better focus on supporting lending to creditworthy borrowers, the final
rule modifies the interim final rule. Specifically, the final rule
permits use of the 2020 CECL transition provision by any banking
organization that adopts CECL during the 2020 calendar year, including
those not required to adopt CECL under GAAP in the 2020 calendar year
and those that adopt CECL in an interim period in the 2020 calendar
year. A banking organization that initially elected the three-year
transition provision under the 2019 CECL rule earlier in 2020 because
it was not eligible to elect the 2020 CECL transition provision under
the interim final rule at that time may change its election to the 2020
CECL transition provision in its Call Report or FR Y-9C (as applicable)
filed later in the 2020 calendar year. In all cases, an electing
banking organization must follow the calculations for determining the
transitional amounts as described in the capital rule.
D. Transitions Applicable to Advanced Approaches Banking Organizations
Consistent with the interim final rule, the final rule adjusts the
transitional amounts related to eligible credit reserves for advanced
approaches banking organizations \12\ that elect to use the 2020 CECL
transition provision. The final rule also adjusts the transitional
amounts related to the supplementary leverage ratio's total exposure
amount. An advanced approaches banking organization that elects the
2020 CECL transition provision continues to be required to disclose two
sets of regulatory capital ratios under the capital rule: One set would
reflect the banking organization's capital ratios with the CECL
transition provision and the other set would reflect the banking
organization's capital ratios on a fully phased-in basis.\13\
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\12\ A banking organization is an advanced approaches banking
organization if it (1) is a global systemically important bank
holding company, (2) is a Category II banking organization, (3) has
elected to be an advanced approached banking organization, (4) is a
subsidiary of a company that is an advanced approaches banking
organization, or (5) has a subsidiary depository institution that is
an advanced approaches banking organization. See 12 CFR 3.100 (OCC);
12 CFR 217.100 (Board); 12 CFR 324.100 (FDIC).
\13\ See 12 CFR 3.173 (OCC); 12 CFR 217.173 (Board); 12 CFR
324.173 (FDIC).
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E. Other Considerations
The agencies received a few comments on topics not discussed in the
interim final rule. One commenter requested that the FASB and the
agencies allow banking organizations of all sizes the option to defer
the implementation of CECL until 2025, given current economic
uncertainties. Other commenters requested that the agencies study
further the relationship between regulatory capital and credit loss
allowances and whether the impact of CECL on banking organizations'
regulatory capital should result in permanent revisions to the capital
rule. One commenter requested that the agencies increase the amount of
ACL that would be eligible to be added back to tier 2 capital.
The agencies will continue to study the need for further revisions
to the regulatory capital framework to account for CECL and take
warranted actions as the agencies deem necessary. The agencies will
continue to use GAAP as the basis for accounting principles applicable
to reports or statements required to be filed with the agencies,
consistent with section 37 of the Federal Deposition Insurance Act.\14\
The agencies will continue to use the supervisory process to examine
credit loss estimates and allowance balances of banking organizations
regardless of their election to use CECL transition provisions. In
addition, the agencies may assess the capital plans at electing banking
organizations for ensuring
[[Page 61582]]
sufficient capital at the expiration of such transition periods.\15\
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\14\ See 12 U.S.C. 1831n(a)(2)(A).
\15\ The Board extended the due date for the Y-14A collection of
supplemental CECL information from April 6th until May 11th (due
date of the March 31 FR Y-9C) and is including changes in the Y-14A
instructions to align with the changes outlined in the interim final
rule. These changes are effective for the submission associated with
the FR Y-14 as of December 31, 2019.
Under the Board's December 2018 amendments to its stress test
rules, a banking organization that had adopted CECL in 2020 was
required to include the impact of CECL into their stressed
projections beginning in the 2020 stress testing cycle. As a result
of the interim final rule, firms that have already adopted CECL have
the option to either include the adjustments from the interim final
rule in their 2020 stress projections or delay doing so. As noted in
the 2020 CCAR summary instructions, the Board will not issue
supervisory findings on banking organizations' stressed estimates of
allowances under CECL until the 2022 CCAR cycle, at the earliest.
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F. Technical Amendments to the Interim Final Rule
The agencies are making technical, non-substantive edits in the
final rule to correct typographical errors in the interim final rule.
Specifically, the amendments correct and clarify certain definitions
and terminology used in the 2020 CECL transition provision and remove
extraneous language that was inadvertently included in the interim
final rule.
IV. Impact Assessment
As discussed in the Supplementary Information to the interim final
rule, CECL is expected to affect the timing and magnitude of banking
organizations' loss provisioning, particularly around periods of
economic stress. As recently as late last year, economic conditions
appeared stable and the introduction of CECL was expected to have only
a modest effect on operations. However, the additional uncertainty due
to the introduction of a new credit loss accounting standard in a
period of stress associated with COVID-19 poses a unique and
unanticipated challenge to business operations.
The agencies issued the interim final rule to mitigate the extent
to which CECL implementation complicates capital planning challenges
posed by the economic effects of the COVID-19 pandemic by making the
regulatory capital impact of near-term accounting for credit losses
under CECL through the crisis roughly comparable to the regulatory
capital impact under the incurred loss methodology. To do so, the 2020
CECL transition provision includes the entire day-one impact as well as
an estimate of the incremental increase in credit loss allowances
attributable to CECL as compared to the incurred loss methodology. With
the 2020 CECL transition provision provided by the interim final rule,
as clarified by the final rule, banking organizations have time to
adapt capital planning under stress to the new credit loss accounting
standard, improving their flexibility and enhancing their ability to
serve as a source of credit to the U.S. economy.
The uniform 25 percent scaling factor is only an approximation of
the average after-tax provision for credit losses attributable to CECL,
relative to the incurred loss methodology, in a given reporting
quarter. Banking organizations may realize effects that are higher or
lower than the amount calculated using the scaling factor.
Additionally, the transition provision does not directly address likely
differences in the timing of loss recognition under CECL and the
incurred loss methodology. To the extent that allowances related to the
economic effects of the COVID-19 pandemic build sooner under CECL than
they would have under the incurred loss methodology, the transition
provision provided in the final rule will not fully offset the
regulatory capital impact of CECL. However, there is a significant
benefit to operational simplicity from using a single scalar for the
quarterly adjustments for all electing banking organizations.
As discussed previously, any banking organization that chooses to
adopt, or is required to adopt CECL during the 2020 calendar year, as
well as any banking organization that is part of a consolidated group
whose holding company adopts CECL under GAAP during the 2020 calendar
year will be covered by the final rule. However, the final rule will
only directly affect those institutions that opt to utilize the 2020
CECL transition provision. The choice to adopt the 2020 CECL transition
provision will depend on the characteristics of each individual
institution, therefore the agencies do not know how many institutions
will choose to do so.
As mentioned previously, under the interim final rule and the final
rule, banking organizations that are required to adopt CECL under GAAP
(as in effect January 1, 2020) in the 2020 calendar year would be
eligible for the 2020 CECL transition provision. Under the final rule,
the agencies are also permitting use of the 2020 CECL transition
provision by any banking organization that is part of a consolidated
group in which its holding company is required under GAAP to adopt CECL
during the 2020 calendar year. Also, the agencies are expanding the
scope of the 2020 CECL transition provision to include any banking
organization that is not required to adopt CECL under GAAP in the 2020
calendar year, but nonetheless chooses to early adopt CECL in the 2020
calendar year, including a banking organization that adopts CECL in an
interim period in the 2020 calendar year. The agencies do not have
information necessary to estimate the number of institutions that may
choose to adopt CECL in the 2020 calendar year and may avail themselves
of the 2020 CECL transition provision.
The final rule provides electing banking organizations relief in
response to the additional operational challenges and resource burden
of implementing CECL amid the uncertainty caused by recent strains on
the U.S. economy, so that electing banking organizations may better
focus on supporting lending to creditworthy households and businesses,
while maintaining the quality of regulatory capital and reducing the
potential for competitive inequities across banking organizations.
Banking organizations that are eligible for, and opt to utilize the
2020 CECL transition provision may incur some regulatory costs
associated with making changes to their systems and processes.
V. Administrative Law Matters
A. Administrative Procedure Act
The agencies are issuing this final rule without prior notice and
the opportunity for public comment and the 30-day delayed effective
date ordinarily prescribed by the Administrative Procedure Act (APA).
Pursuant to section 553(b)(B) of the APA, general notice and the
opportunity for public comment are not required with respect to a
rulemaking when an ``agency for good cause finds (and incorporates the
finding and a brief statement of reasons therefor in the rules issued)
that notice and public procedure thereon are impracticable,
unnecessary, or contrary to the public interest.''
The agencies recognize that the public interest is best served by
implementing the final rule as soon as possible. As discussed above,
recent events have suddenly and significantly affected global economic
activity. In addition, financial markets have experienced significant
volatility. The magnitude and persistence of the overall effects on the
economy remain highly uncertain.
The 2019 CECL rule, as amended by the interim final rule, was
adopted by the agencies to address concerns that despite adequate
capital planning, uncertainty about the economic environment at the
time of CECL
[[Page 61583]]
adoption could result in higher-than-anticipated increases in credit
loss allowances. Because of recent economic dislocations and
disruptions in financial markets, banking organizations may face
higher-than-anticipated increases in credit loss allowances. The final
rule is intended to mitigate some of the uncertainty that comes with
the increase in credit loss allowances during a challenging economic
environment by temporarily limiting the approximate effects of CECL in
regulatory capital. This will allow banking organizations to better
focus on supporting lending to creditworthy households and businesses.
The APA also requires a 30-day delayed effective date, except for
(1) substantive rules which grant or recognize an exemption or relieve
a restriction; (2) interpretative rules and statements of policy; or
(3) as otherwise provided by the agency for good cause. Because the
rule relieves a restriction, the final rule is exempt from the APA's
delayed effective date requirement. Additionally, the agencies find
good cause to publish the final rule with an immediate effective date
for the same reasons set forth above under the discussion of section
553(b)(B) of the APA.
B. Congressional Review Act
For purposes of Congressional Review Act, the OMB makes a
determination as to whether a final rule constitutes a ``major''
rule.\16\ If a rule is deemed a ``major rule'' by the Office of
Management and Budget (OMB), the Congressional Review Act generally
provides that the rule may not take effect until at least 60 days
following its publication.\17\
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\16\ 5 U.S.C. 801 et seq.
\17\ 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.\18\
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\18\ 5 U.S.C. 804(2).
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For the same reasons set forth above, the agencies are adopting the
final rule without the delayed effective date generally prescribed
under the Congressional Review Act. The delayed effective date required
by the Congressional Review Act does not apply to any rule for which an
agency for good cause finds (and incorporates the finding and a brief
statement of reasons therefor in the rule issued) that notice and
public procedure thereon are impracticable, unnecessary, or contrary to
the public interest. In light of current market uncertainty, the
agencies have determined that delaying the effective date of the final
rule would be contrary to the public interest.
As required by the Congressional Review Act, the agencies will
submit the final rule and other appropriate reports to Congress and the
Government Accountability Office for review.
C. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) (PRA)
states that no agency may conduct or sponsor, nor is the respondent
required to respond to, an information collection unless it displays a
currently valid OMB control number. This final rule does not contain
any information collection requirements. However, in connection with
the interim final rule, the Board temporarily revised the Financial
Statements for Holding Companies (FR Y-9 reports; OMB No. 7100-0128)
and the Capital Assessments and Stress Testing Reports (FR Y-14A/Q/M;
OMB No. 7100-0341) and invited comment on a proposal to extend those
collections of information for three years, with revision. No comments
were received regarding this proposal under the PRA. The Board has now
extended, with revision, the FR Y-9 and FR Y-14A/Q/M reports as
proposed, except for minor clarifications discussed below to align the
reporting instructions with this final rule.
Additionally, in connection with the interim final rule, the
agencies made revisions to the Call Reports (OCC OMB Control No. 1557-
0081; Board OMB Control No. 7100-0036; and FDIC OMB Control No. 3064-
0052) and the FFIEC 101 (OCC OMB Control No. 1557-0239; Board OMB
Control No. 7100-0319; FDIC OMB Control No. 3064-0159). The final
changes to the Call Reports, the FFIEC 101 and their related
instructions are addressed in a separate Federal Register notice.\19\
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\19\ See 85 FR 44361 (July 22, 2020).
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Current Actions
The Board has extended the FR Y-9C and FR Y-14A/Q/M for three
years, with revision, as originally proposed, except for minor
clarifications to the instructions to the reports to accurately reflect
the CECL transition provision as modified by this final rule. In
addition to the specific changes mentioned in the interim final rule,
the final rule expands eligibility for the new transition to banking
organizations that voluntarily early adopt CECL in the 2020 calendar
year. The final rule also includes minor adjustments to clarify
calculation of the transition provision. Specifically, the FR Y-9C
instructions would be clarified to note that an electing banking
organization that opted to apply the transition in the first quarter in
which it was eligible is not required to apply the transition in any
quarter in which it would not reflect a positive modified CECL
transitional amount (that could result in negative retained earnings).
Also, the FR Y-9C instructions would be clarified to note that the day-
one transitional amounts (CECL transitional amount, AACL transitional
amount, and DTA transitional amount) may be calculated as a positive or
negative number. All of the updates to the FR Y-9C and FR Y-14A/Q/M
noted in the interim and final rule result in a zero estimated net
change in hourly burden.
Revision, With Extension, of the Following Information Collections
(1) Report Title: Financial Statements for Holding Companies.
Agency Form Number: FR Y-9C, FR Y-9LP, FR Y-9SP, FR Y-9ES, and FR
Y-9CS.
OMB Control Number: 7100-0128.
Effective Date: September 30, 2020
Frequency: Quarterly, semiannually, and annually.
Respondents: Bank holding companies, savings and loan holding
companies,\20\ securities holding companies, and U.S. intermediate
holding companies (collectively, HCs).
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\20\ A savings and loan holding company (SLHC) must file one or
more of the FR Y-9 series of reports unless it is: (1) A
grandfathered unitary SLHC with primarily commercial assets and
thrifts that make up less than 5 percent of its consolidated assets;
or (2) a SLHC that primarily holds insurance-related assets and does
not otherwise submit financial reports with the SEC pursuant to
section 13 or 15(d) of the Securities Exchange Act of 1934.
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Estimated Number of Respondents: FR Y-9C (non-advanced approaches
community bank leverage ratio (CBLR) HCs with less than $5 billion in
total assets): 71; FR Y-9C (non-advanced approaches CBLR HCs with $5
billion or more in total assets): 35; FR Y-9C (non-advanced approaches,
non CBLR, HCs with less than $5 billion in total assets): 84; FR Y-9C
(non-advanced approaches, non CBLR HCs, with $5 billion or more in
total assets): 154; FR Y-9C (advanced
[[Page 61584]]
approaches HCs): 19; FR Y-9LP: 434; FR Y-9SP: 3,960; FR Y-9ES: 83; FR
Y-9CS: 236.
Estimated average hours per response:
Reporting
FR Y-9C (non-advanced approaches CBLR HCs with less than $5 billion
in total assets): 29.17 hours; FR Y-9C (non-advanced approaches CBLR
HCs with $5 billion or more in total assets): 35.14; FR Y-9C (non-
advanced approaches, non CBLR HCs, with less than $5 billion in total
assets): 41.01; FR Y-9C (non-advanced approaches, non CBLR, HCs with $5
billion or more in total assets): 46.98 hours; FR Y-9C (advanced
approaches HCs): 48.80 hours; FR Y-9LP: 5.27 hours; FR Y-9SP: 5.40
hours; FR Y-9ES: 0.50 hours; FR Y-9CS: 0.50 hours.
Recordkeeping
FR Y-9C (non-advanced approaches HCs with less than $5 billion in
total assets), FR Y-9C (non-advanced approaches HCs with $5 billion or
more in total assets), FR Y-9C (advanced approaches HCs), and FR Y-9LP:
1.00 hour; FR Y-9SP, FR Y-9ES, and FR Y-9CS: 0.50 hours.
Estimated annual burden hours:
Reporting
FR Y-9C (non-advanced approaches CBLR HCs with less than $5 billion
in total assets): 8,284 hours; FR Y-9C (non-advanced approaches CBLR
HCs with $5 billion or more in total assets): 4,920; FR Y-9C (non-
advanced approaches non CBLR HCs with less than $5 billion in total
assets): 13,779; FR Y-9C (non-advanced approaches non CBLR HCs with $5
billion or more in total assets): 28,940 hours; FR Y-9C (advanced
approaches HCs): 3,709 hours; FR Y-9LP: 9,149 hours; FR Y-9SP: 42,768
hours; FR Y-9ES: 42 hours; FR Y-9CS: 472 hours.
Recordkeeping
FR Y-9C: 1,452 hours; FR Y-9LP: 1,736 hours; FR Y-9SP: 3,960 hours;
FR Y-9ES: 42 hours; FR Y-9CS: 472 hours.
General description of report:
The FR Y-9C consists of standardized financial statements similar
to the Call Reports filed by banks and savings associations.\21\ The FR
Y-9C collects consolidated data from HCs and is filed quarterly by top-
tier HCs with total consolidated assets of $3 billion or more.\22\
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\21\ The Call Reports consist of the Consolidated Reports of
Condition and Income for a Bank with Domestic Offices Only and Total
Assets Less Than $5 Billion (FFIEC 051), the Consolidated Reports of
Condition and Income for a Bank with Domestic Offices Only (FFIEC
041) and the Consolidated Reports of Condition and Income for a Bank
with Domestic and Foreign Offices (FFIEC 031).
\22\ Under certain circumstances described in the FR Y-9C's
General Instructions, HCs with assets under $3 billion may be
required to file the FR Y-9C.
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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.\23\ The report consists of standardized
financial statements.
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\23\ 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 FR Y-9 family of reports on bank holding companies
pursuant to section 5 of the Bank Holding Company Act of 1956 (BHC Act)
(12 U.S.C. 1844); on savings and loan holding companies pursuant to
section 10(b)(2) and (3) of the Home Owners' Loan Act (12 U.S.C.
1467a(b)(2) and (3)), as amended by sections 369(8) and 604(h)(2) of
the Dodd-Frank Wall Street and Consumer Protection Act (Dodd-Frank
Act); on U.S. intermediate holding companies pursuant to section 5 of
the BHC Act (12 U.S.C 1844), as well as pursuant to sections 102(a)(1)
and 165 of the Dodd-Frank Act (12 U.S.C. 511(a)(1) and 5365); and on
securities holding companies pursuant to section 618 of the Dodd-Frank
Act (12 U.S.C. 1850a(c)(1)(A)). The obligation to submit the FR Y-9
series of reports, and the recordkeeping requirements set forth in the
respective instructions to each report, are mandatory, except for the
FR Y-9CS, which is voluntary.
With respect to the FR Y-9C report, Schedule HI's data item 7(g)
``FDIC deposit insurance assessments,'' Schedule HC P's data item 7(a)
``Representation and warranty reserves for 1-4 family residential
mortgage loans sold to U.S. government agencies and government
sponsored agencies,'' and Schedule HC P's data item 7(b)
``Representation and warranty reserves for 1-4 family residential
mortgage loans sold to other parties'' are considered confidential
commercial and financial information. Such treatment is appropriate
under exemption 4 of the Freedom of Information Act (FOIA) (5 U.S.C.
552(b)(4)) because these data items reflect commercial and financial
information that is both customarily and actually treated as private by
the submitter, and which the Board has previously assured submitters
will be treated as confidential. It also appears that disclosing these
data items may reveal confidential examination and supervisory
information, and in such instances, this information would also be
withheld pursuant to exemption 8 of the FOIA (5 U.S.C. 552(b)(8)),
which protects information related to the supervision or examination of
a regulated financial institution.
In addition, for both the FR Y-9C report, Schedule HC's memorandum
item 2.b. and the FR Y-9SP report, Schedule SC's memorandum item 2.b.,
the name and email address of the external auditing firm's engagement
partner, is considered confidential commercial information and
protected by exemption 4 of the FOIA (5 U.S.C. 552(b)(4)) if the
identity of the engagement partner is treated as private information by
HCs. The Board has assured respondents that this information will be
treated as confidential since the collection of this data item was
proposed in 2004.
Additionally, items on the FR Y-9C, Schedule HC-C for loans
modified under Section 4013, data items Memorandum items 16.a, ``Number
of Section 4013 loans outstanding''; and Memorandum items 16.b,
``Outstanding balance of Section 4013 loans'' are considered
confidential. While the Board generally makes institution-level FR Y-9C
report data publicly available, the Board is collecting Section 4013
loan information as part of condition
[[Page 61585]]
reports for the impacted HCs and the Board considers disclosure of
these items at the HC level would not be in the public interest. Such
information is permitted to be collected on a confidential basis,
consistent with 5 U.S.C. 552(b)(8). In addition, holding companies may
be reluctant to offer modifications under Section 4013 if information
on these modifications made by each holding company is publicly
available, as analysts, investors, and other users of public FR Y-9C
report information may penalize an institution for using the relief
provided by the CARES Act. The Board may disclose Section 4013 loan
data on an aggregated basis, consistent with confidentiality.
Aside from the data items described above, the remaining data items
on the FR Y-9C report and the FR-Y 9SP report are generally not
accorded confidential treatment. The data items collected on FR Y-9LP,
FR Y-9ES, and FR Y-9CS reports, are also generally not accorded
confidential treatment. As provided in the Board's Rules Regarding
Availability of Information (12 CFR part 261), however, a respondent
may request confidential treatment for any data items the respondent
believes should be withheld pursuant to a FOIA exemption. The Board
will review any such request to determine if confidential treatment is
appropriate, and will inform the respondent if the request for
confidential treatment has been denied.
To the extent the instructions to the FR Y-9C, FR Y-9LP, FR Y-9SP,
and FR Y-9ES reports each respectively direct the financial institution
to retain the work papers and related materials used in preparation of
each report, such material would only be obtained by the Board as part
of the examination or supervision of the financial institution.
Accordingly, such information is considered confidential pursuant to
exemption 8 of the FOIA (5 U.S.C. 552(b)(8)). In addition, the
financial institution's work papers and related materials may also be
protected by exemption 4 of the FOIA, to the extent such financial
information is treated as confidential by the respondent (5 U.S.C.
552(b)(4)).
(2) Report title: Capital Assessments and Stress Testing Reports.
Agency Form Number: FR Y-14A/ Q/M.
OMB Control Number: 7100-0341.
Frequency: Annually, quarterly, and monthly.
Respondents: These collections of information are applicable to
BHCs, U.S. intermediate holding companies (IHCs), and savings and loan
holding companies (SLHCs) \24\ (collectively, ``holding companies'')
with $100 billion or more in total consolidated assets, as based on:
(i) The average of the firm's total consolidated assets in the four
most recent quarters as reported quarterly on the firm's Consolidated
Financial Statements for Holding Companies (FR Y-9C); or (ii) if the
firm has not filed an FR Y-9C for each of the most recent four
quarters, then the average of the firm's total consolidated assets in
the most recent consecutive quarters as reported quarterly on the
firm's FR Y-9Cs. Reporting is required as of the first day of the
quarter immediately following the quarter in which the respondent meets
this asset threshold, unless otherwise directed by the Board.
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\24\ SLHCs with $100 billion or more in total consolidated
assets become members of the FR Y-14Q and FR Y-14M panels effective
June 30, 2020, and the FR Y-14A panel effective December 31, 2020.
See 84 FR 59032 (Nov. 1, 2019).
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Estimated number of respondents: FR Y-14A/Q: 36; FR Y-14M: 34.\25\
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\25\ The estimated number of respondents for the FR Y-14M is
lower than for the FR Y-14Q and FR Y-14A because, in recent years,
certain respondents to the FR Y-14A and FR Y-14Q have not met the
materiality thresholds to report the FR Y-14M due to their lack of
mortgage and credit activities. The Board expects this situation to
continue for the foreseeable future.
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Estimated average hours per response: FR Y-14A: 1,085 hours; FR Y-
14Q: 2,142 hours; FR Y-14M: 1,072 hours; FR Y-14 On-going Automation
Revisions: 480 hours; FR Y-14 Attestation On-going Attestation: 2,560
hours.
Estimated annual burden hours: FR Y-14A: 39,060 hours; FR Y-14Q:
308,448 hours; FR Y-14M: 437,376 hours; FR Y-14 On-going Automation
Revisions: 17,280 hours; FR Y-14 Attestation On-going Attestation:
33,280 hours.
General description of report: This family of information
collections is composed of the following three reports:
The annual \26\ FR Y-14A collects quantitative projections of
balance sheet, income, losses, and capital across a range of
macroeconomic scenarios and qualitative information on methodologies
used to develop internal projections of capital across scenarios.\27\
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\26\ In certain circumstances, a BHC or IHC may be required to
re-submit its capital plan. See 12 CFR 225.8(e)(4). Firms that must
re-submit their capital plan generally also must provide a revised
FR Y-14A in connection with their resubmission.
\27\ On October 10, 2019, the Board issued a final rule that
eliminated the requirement for firms subject to Category IV
standards to conduct and publicly disclose the results of a company-
run stress test. See 84 FR 59032 (Nov. 1, 2019). That final rule
maintained the existing FR Y-14 substantive reporting requirements
for these firms in order to provide the Board with the data it needs
to conduct supervisory stress testing and inform the Board's ongoing
monitoring and supervision of its supervised firms. However, as
noted in the final rule, the Board intends to provide greater
flexibility to banking organizations subject to Category IV
standards in developing their annual capital plans and consider
further change to the FR Y-14 forms as part of a separate proposal.
See 84 FR 59032, 59063 (Nov. 1, 2019).
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The quarterly FR Y-14Q collects granular data on various asset
classes, including loans, securities, trading positions, and pre-
provision net revenue for the reporting period.
The monthly FR Y-14M is comprised of three retail portfolio- and
loan-level schedules, and one detailed address-matching schedule to
supplement two of the portfolio and loan-level schedules.
The data collected through the FR Y-14A/Q/M reports provide the
Board with the information needed to help ensure that large firms have
strong, firm[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.
Legal authorization and confidentiality: The Board has the
authority to require BHCs to file the FR Y-14 reports pursuant to
section 5(c) of the BHC Act, 12 U.S.C. 1844(c), and pursuant to section
165(i) of the Dodd-Frank Act, 12 U.S.C. 5365(i). The Board has
authority to require SLHCs to file the FR Y-14 reports pursuant to
section 10(b) of the Home Owners' Loan Act (12 U.S.C. 1467a(b)).
Lastly, the Board has authority to require U.S. IHCs of FBOs to file
the FR Y-14 reports pursuant to section 5 of the BHC Act, as well as
pursuant to sections 102(a)(1) and 165 of the Dodd-Frank Act, 12 U.S.C.
5311(a)(1) and 5365. In addition, section 401(g) of the Economic
Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), 12
U.S.C. 5365 note, provides that the Board has the authority to
establish enhanced
[[Page 61586]]
prudential standards for foreign banking organizations with total
consolidated assets of $100 billion or more, and clarifies that nothing
in section 401 ``shall be construed to affect the legal effect of the
final rule of the Board. . . entitled `Enhanced Prudential Standard for
[BHCs] and Foreign Banking Organizations' (79 FR 17240 (March 27,
2014)), as applied to foreign banking organizations with total
consolidated assets equal to or greater than $100 million.'' \28\ The
FR Y-14 reports are mandatory. The information collected in the FR Y-14
reports is collected as part of the Board's supervisory process, and
therefore, such information is afforded confidential treatment pursuant
to exemption 8 of the Freedom of Information Act (FOIA), 5 U.S.C.
552(b)(8). 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).
---------------------------------------------------------------------------
\28\ The Board's Final Rule referenced in section 401(g) of
EGRRCPA specifically stated that the Board would require IHCs to
file the FR Y-14 reports. See 79 FR 17240, 17304 (Mar. 27, 2014).
---------------------------------------------------------------------------
D. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) \29\ requires an agency to
consider whether the rules it proposes will have a significant economic
impact on a substantial number of small entities.\30\ The RFA applies
only to rules for which an agency publishes a general notice of
proposed rulemaking pursuant to 5 U.S.C. 553(b). Since the agencies
were not required to issue a general notice of proposed rulemaking
associated with this final rule, no RFA is required. Accordingly, the
agencies have concluded that the RFA's requirements relating to initial
and final regulatory flexibility analysis do not apply.
---------------------------------------------------------------------------
\29\ 5 U.S.C. 601 et seq.
\30\ Under regulations issued by the Small Business
Administration, a small entity includes a depository institution,
bank holding company, or savings and loan holding company with total
assets of $600 million or less and trust companies with total assets
of $41.5 million or less. See 13 CFR 121.201.
---------------------------------------------------------------------------
E. Riegle Community Development and Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the Riegle Community Development and
Regulatory Improvement Act (RCDRIA),\31\ in determining the effective
date and administrative compliance requirements for new regulations
that impose additional reporting, disclosure, or other requirements on
insured depository institutions (IDIs), each Federal banking agency
must consider, consistent with the principle of safety and soundness
and the public interest, any administrative burdens that such
regulations would place on depository institutions, including small
depository institutions, and customers of depository institutions, as
well as the benefits of such regulations. In addition, section 302(b)
of RCDRIA requires new regulations and amendments to regulations that
impose additional reporting, disclosures, or other new requirements on
IDIs generally to take effect on the first day of a calendar quarter
that begins on or after the date on which the regulations are published
in final form, with certain exceptions, including for good cause.\32\
The agencies have determined that the final rule does not impose
additional reporting, disclosure, or other requirements on IDIs;
therefore, the requirements of the RCDRIA do not apply.
---------------------------------------------------------------------------
\31\ 12 U.S.C. 4802(a).
\32\ 12 U.S.C. 4802.
---------------------------------------------------------------------------
F. Plain Language
Section 722 of the Gramm-Leach-Bliley Act \33\ requires the Federal
banking agencies to use ``plain language'' in all proposed and final
rules published after January 1, 2000. In light of this requirement,
the agencies have sought to present the final rule in a simple and
straightforward manner.
---------------------------------------------------------------------------
\33\ Public Law 106-102, section 722, 113 Stat. 1338, 1471
(1999).
---------------------------------------------------------------------------
G. Unfunded Mandates
As a general matter, the Unfunded Mandates Act of 1995 (UMRA), 2
U.S.C. 1531 et seq., requires the preparation of a budgetary impact
statement before promulgating a rule that includes a Federal mandate
that may result in the expenditure by State, local, and tribal
governments, in the aggregate, or by the private sector, of $100
million or more in any one year. However, the UMRA does not apply to
final rules for which a general notice of proposed rulemaking was not
published. See 2 U.S.C. 1532(a). Since there was no general notice of
proposed rulemaking, the OCC has not prepared an economic analysis of
the final rule under the UMRA.
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
0
For the reasons set forth in the preamble, the interim final rule
amending chapter I of title 12 of the Code of Federal Regulations,
which was published at 85 FR 17723 on March 31, 2020, and amended at 85
FR 29839 on May 19, 2020, is adopted as final with the following
changes:
PART 3--CAPITAL ADEQUACY STANDARDS
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, 5412(b)(2)(B), and
Pub. L. 116-136, 134 Stat. 281.
Subpart G--Transition Provisions
0
2. Revise Sec. 3.301 to read as follows:
Sec. 3.301 Current Expected Credit Losses (CECL) transition.
(a) CECL transition provision. (1) Except as provided in paragraph
(d) of this section, a national bank or Federal savings organization
may elect to use a CECL transition provision pursuant to this section
only if the national bank or Federal savings association records a
reduction in retained earnings due to the adoption of CECL as of the
beginning of the fiscal year in which the national bank or Federal
savings association adopts CECL.
(2) Except as provided in paragraph (d) of this section, a national
bank or Federal savings association that elects to use the CECL
transition provision must elect to use the CECL transition provision in
the first Call Report that includes CECL filed by the national bank or
Federal savings association after it adopts CECL.
(3) A national bank or Federal savings association that does not
elect to use the CECL transition provision as of the first Call Report
that includes CECL filed as described in paragraph (a)(2) of this
section may not elect to use the CECL
[[Page 61587]]
transition provision in subsequent reporting periods.
(b) Definitions. For purposes of this section, the following
definitions apply:
(1) Transition period means the three-year period beginning the
first day of the fiscal year in which a national bank or Federal
savings association adopts CECL and reflects CECL in its first Call
Report filed after that date; or, for the 2020 CECL transition
provision under paragraph (d) of this section, the five-year period
beginning on the earlier of the date a national bank or Federal savings
association was required to adopt CECL for accounting purposes under
GAAP (as in effect January 1, 2020), or the first day of the fiscal
year that begins during the 2020 calendar year in which the national
bank or Federal savings association files regulatory reports that
include CECL.
(2) CECL transitional amount means the difference, net of any DTAs,
in the amount of a national bank's or Federal savings association's
retained earnings as of the beginning of the fiscal year in which the
national bank or Federal savings association adopts CECL from the
amount of the national bank's or Federal savings association's retained
earnings as of the closing of the fiscal year-end immediately prior to
the national bank's or Federal savings association's adoption of CECL.
(3) DTA transitional amount means the difference in the amount of a
national bank's or Federal savings association's DTAs arising from
temporary differences as of the beginning of the fiscal year in which
the national bank or Federal savings association adopts CECL from the
amount of the national bank's or Federal savings association's DTAs
arising from temporary differences as of the closing of the fiscal
year-end immediately prior to the national bank's or Federal savings
association's adoption of CECL.
(4) AACL transitional amount means the difference in the amount of
a national bank's or Federal savings association's AACL as of the
beginning of the fiscal year in which the national bank or Federal
savings association adopts CECL and the amount of the national bank's
or Federal savings association's ALLL as of the closing of the fiscal
year-end immediately prior to the national bank's or Federal savings
association's adoption of CECL.
(5) Eligible credit reserves transitional amount means the
difference in the amount of a national bank's or Federal savings
association's eligible credit reserves as of the beginning of the
fiscal year in which the national bank or Federal savings association
adopts CECL from the amount of the national bank's or Federal savings
association's eligible credit reserves as of the closing of the fiscal
year-end immediately prior to the national bank's or Federal savings
association's adoption of CECL.
(c) Calculation of the three-year CECL transition provision. (1)
For purposes of the election described in paragraph (a)(1) of this
section and except as provided in paragraph (d) of this section, a
national bank or Federal savings association must make the following
adjustments in its calculation of regulatory capital ratios:
(i) Increase retained earnings by seventy-five percent of its CECL
transitional amount during the first year of the transition period,
increase retained earnings by fifty percent of its CECL transitional
amount during the second year of the transition period, and increase
retained earnings by twenty-five percent of its CECL transitional
amount during the third year of the transition period;
(ii) Decrease amounts of DTAs arising from temporary differences by
seventy-five percent of its DTA transitional amount during the first
year of the transition period, decrease amounts of DTAs arising from
temporary differences by fifty percent of its DTA transitional amount
during the second year of the transition period, and decrease amounts
of DTAs arising from temporary differences by twenty-five percent of
its DTA transitional amount during the third year of the transition
period;
(iii) Decrease amounts of AACL by seventy-five percent of its AACL
transitional amount during the first year of the transition period,
decrease amounts of AACL by fifty percent of its AACL transitional
amount during the second year of the transition period, and decrease
amounts of AACL by twenty-five percent of its AACL transitional amount
during the third year of the transition period; and
(iv) Increase average total consolidated assets as reported on the
Call Report for purposes of the leverage ratio by seventy-five percent
of its CECL transitional amount during the first year of the transition
period, increase average total consolidated assets as reported on the
Call Report for purposes of the leverage ratio by fifty percent of its
CECL transitional amount during the second year of the transition
period, and increase average total consolidated assets as reported on
the Call Report for purposes of the leverage ratio by twenty-five
percent of its CECL transitional amount during the third year of the
transition period.
(2) For purposes of the election described in paragraph (a)(1) of
this section, an advanced approaches or Category III national bank or
Federal savings association must make the following additional
adjustments to its calculation of its applicable regulatory capital
ratios:
(i) Increase total leverage exposure for purposes of the
supplementary leverage ratio by seventy-five percent of its CECL
transitional amount during the first year of the transition period,
increase total leverage exposure for purposes of the supplementary
leverage ratio by fifty percent of its CECL transitional amount during
the second year of the transition period, and increase total leverage
exposure for purposes of the supplementary leverage ratio by twenty-
five percent of its CECL transitional amount during the third year of
the transition period; and
(ii) An advanced approaches national bank or Federal savings
association that has completed the parallel run process and that has
received notification from the OCC pursuant to Sec. 3.121(d) must
decrease amounts of eligible credit reserves by seventy-five percent of
its eligible credit reserves transitional amount during the first year
of the transition period, decrease amounts of eligible credit reserves
by fifty percent of its eligible credit reserves transitional amount
during the second year of the transition provision, and decrease
amounts of eligible credit reserves by twenty-five percent of its
eligible credit reserves transitional amount during the third year of
the transition period.
(d) 2020 CECL transition provision. Notwithstanding paragraph (a)
of this section, a national bank or Federal savings association that
adopts CECL for accounting purposes under GAAP as of the first day of a
fiscal year that begins during the 2020 calendar year may elect to use
the transitional amounts and modified transitional amounts in paragraph
(d)(1) of this section with the 2020 CECL transition provision
calculation in paragraph (d)(2) of this section to adjust its
calculation of regulatory capital ratios during each quarter of the
transition period in which a national bank or Federal savings
association uses CECL for purposes of its Call Report. A national bank
or Federal savings association may use the transition provision in this
paragraph (d) if it has a positive modified CECL transitional amount
during any quarter ending in 2020, and makes the election in the Call
Report filed for the same quarter. A national bank or Federal savings
association that does not calculate a positive modified CECL
transitional amount in any quarter is not required to apply the
adjustments in its calculation of regulatory capital ratios in
[[Page 61588]]
paragraph (d)(2) of this section in that quarter.
(1) Definitions. For purposes of the 2020 CECL transition provision
calculation in paragraph (d)(2) of this section, the following
definitions apply:
(i) Modified CECL transitional amount means:
(A) During the first two years of the transition period, the
difference between AACL as reported in the most recent Call Report and
the AACL as of the beginning of the fiscal year in which the national
bank or Federal savings association adopts CECL, multiplied by 0.25,
plus the CECL transitional amount; and
(B) During the last three years of the transition period, the
difference between AACL as reported in the Call Report at the end of
the second year of the transition period and the AACL as of the
beginning of the fiscal year in which the national bank or Federal
savings association adopts CECL, multiplied by 0.25, plus the CECL
transitional amount.
(ii) Modified AACL transitional amount means:
(A) During the first two years of the transition period, the
difference between AACL as reported in the most recent Call Report and
the AACL as of the beginning of the fiscal year in which the national
bank or Federal savings association adopts CECL, multiplied by 0.25,
plus the AACL transitional amount; and
(B) During the last three years of the transition period, the
difference between AACL as reported in the Call Report at the end of
the second year of the transition period and the AACL as of the
beginning of the fiscal year in which the national bank or Federal
savings association adopts CECL, multiplied by 0.25, plus the AACL
transitional amount.
(2) Calculation of 2020 CECL transition provision. (i) A national
bank or Federal savings association that has elected the 2020 CECL
transition provision described in this paragraph (d) may make the
following adjustments in its calculation of regulatory capital ratios:
(A) Increase retained earnings by one-hundred percent of its
modified CECL transitional amount during the first year of the
transition period, increase retained earnings by one hundred percent of
its modified CECL transitional amount during the second year of the
transition period, increase retained earnings by seventy-five percent
of its modified CECL transitional amount during the third year of the
transition period, increase retained earnings by fifty percent of its
modified CECL transitional amount during the fourth year of the
transition period, and increase retained earnings by twenty-five
percent of its 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 or Category III national bank or
Federal savings association that has elected the 2020 CECL transition
provision described in this paragraph (d) may make the following
additional adjustments to its calculation of its applicable regulatory
capital ratios:
(A) Increase total leverage exposure for purposes of the
supplementary leverage ratio by one-hundred percent of its modified
CECL transitional amount during the first year of the transition
period, increase total leverage exposure for purposes of the
supplementary leverage ratio by one hundred percent of its modified
CECL transitional amount during the second year of the transition
period, increase total leverage exposure for purposes of the
supplementary leverage ratio by seventy-five percent of its modified
CECL transitional amount during the third year of the transition
period, increase total leverage exposure for purposes of the
supplementary leverage ratio by fifty percent of its modified CECL
transitional amount during the fourth year of the transition period,
and increase total leverage exposure for purposes of the supplementary
leverage ratio by twenty-five percent of its modified CECL transitional
amount during the fifth year of the transition period; and
(B) An advanced approaches national bank or Federal savings
association that has completed the parallel run process and that has
received notification from the OCC pursuant to 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.
[[Page 61589]]
(e) Eligible credit reserves shortfall. An advanced approaches
national bank or Federal savings association that has completed the
parallel run process and that has received notification from the OCC
pursuant to Sec. 3.121(d), and whose amount of expected credit loss
exceeded its eligible credit reserves immediately prior to the adoption
of CECL, and that has an increase in common equity tier 1 capital as of
the beginning of the fiscal year in which it adopts CECL after
including the first year portion of the CECL transitional amount (or
modified CECL transitional amount) must decrease its CECL transitional
amount (or modified CECL transitional amount) used in paragraph (c) of
this section by the full amount of its DTA transitional amount.
(f) Business combinations. Notwithstanding any other requirement in
this section, for purposes of this paragraph (f), in the event of a
business combination involving a national bank or Federal savings
association where one or both of the national banks or Federal savings
associations have elected the treatment described in this section:
(1) If the acquirer national bank or Federal savings association
(as determined under GAAP) elected the treatment described in this
section, the acquirer national bank or Federal savings association must
continue to use the transitional amounts (unaffected by the business
combination) that it calculated as of the date that it adopted CECL
through the end of its transition period.
(2) If the acquired insured depository institution (as determined
under GAAP) elected the treatment described in this section, any
transitional amount of the acquired insured depository institution does
not transfer to the resulting national bank or Federal savings
association.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
12 CFR Chapter II
Authority and Issuance
0
For the reasons set forth in the preamble, the interim final rule
amending chapter II of title 12 of the Code of Federal Regulations,
which was published at 85 FR 17723 on March 31, 2020, and amended at 85
FR 29839 on May 19, 2020, is adopted as final with the following
changes:
PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)
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-1, 1831w, 1835, 1844(b), 1851, 3904,
3906-3909, 4808, 5365, 5368, 5371, 5371 note, and sec. 4012, Pub. L.
116-136, 134 Stat. 281.
Subpart G--Transition Provisions
0
4. Revise Sec. 217.301 to read as follows:
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) Except as provided in paragraph (d) of this section, a Board-
regulated institution that elects to use the CECL transition provision
must elect to use the CECL transition provision in the first Call
Report or FR Y-9C that includes CECL filed by the Board-regulated
institution after it adopts CECL.
(3) A Board-regulated institution that does not elect to use the
CECL transition provision as of the first Call Report or FR Y-9C that
includes CECL filed as described in paragraph (a)(2) of this section
may not elect to use the CECL transition provision in subsequent
reporting periods.
(b) Definitions. For purposes of this section, the following
definitions apply:
(1) Transition period means the three-year period beginning the
first day of the fiscal year in which a Board-regulated institution
adopts CECL and reflects CECL in its first Call Report or FR Y-9C filed
after that date; or, for the 2020 CECL transition provision under
paragraph (d) of this section, the five-year period beginning on the
earlier of the date a Board-regulated institution was required to adopt
CECL for accounting purposes under GAAP (as in effect January 1, 2020),
or the first day of the fiscal year that begins during the 2020
calendar year in which the Board-regulated institution files regulatory
reports that include CECL.
(2) CECL transitional amount means the difference net of any DTAs,
in the amount of a Board-regulated institution's retained earnings as
of the beginning of the fiscal year in which the Board-regulated
institution adopts CECL from the amount of the Board-regulated
institution's retained earnings as of the closing of the fiscal year-
end immediately prior to the Board-regulated institution's adoption of
CECL.
(3) DTA transitional amount means the difference in the amount of a
Board-regulated institution's DTAs arising from temporary differences
as of the beginning of the fiscal year in which the Board-regulated
institution adopts CECL from the amount of the Board-regulated
institution's DTAs arising from temporary differences as of the closing
of the fiscal year-end immediately prior to the Board-regulated
institution's adoption of CECL.
(4) AACL transitional amount means the difference in the amount of
a Board-regulated institution's AACL as of the beginning of the fiscal
year in which the Board-regulated institution adopts CECL and the
amount of the Board-regulated institution's ALLL as of the closing of
the fiscal year-end immediately prior to the Board-regulated
institution's adoption of CECL.
(5) Eligible credit reserves transitional amount means the
difference in the amount of a Board-regulated institution's eligible
credit reserves as of the beginning of the fiscal year in which the
Board-regulated institution adopts CECL from the amount of the Board-
regulated institution's eligible credit reserves as of the closing of
the fiscal year-end immediately prior to the Board-regulated
institution's adoption of CECL.
(c) Calculation of the three-year CECL transition provision. (1)
For purposes of the election described in paragraph (a)(1) of this
section and except as provided in paragraph (d) of this section, a
Board-regulated institution must make the following adjustments in its
calculation of regulatory capital ratios:
(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
[[Page 61590]]
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 or Category III Board-regulated
institution must make the following additional adjustments to its
calculation of its applicable regulatory capital ratios:
(i) Increase total leverage exposure for purposes of the
supplementary leverage ratio by seventy-five percent of its CECL
transitional amount during the first year of the transition period,
increase total leverage exposure for purposes of the supplementary
leverage ratio by fifty percent of its CECL transitional amount during
the second year of the transition period, and increase total leverage
exposure for purposes of the supplementary leverage ratio by twenty-
five percent of its CECL transitional amount during the third year of
the transition period; and
(ii) An advanced approaches Board-regulated institution that has
completed the parallel run process and that 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) 2020 CECL transition provision. Notwithstanding paragraph (a)
of this section, a Board-regulated institution that adopts CECL for
accounting purposes under GAAP as of the first day of a fiscal year
that begins during the 2020 calendar year may elect to use the
transitional amounts and modified transitional amounts in paragraph
(d)(1) of this section with the 2020 CECL transition provision
calculation in paragraph (d)(2) of this section to adjust its
calculation of regulatory capital ratios during each quarter of the
transition period in which a Board-regulated institution uses CECL for
purposes of its Call Report or FR Y-9C. A Board-regulated institution
may use the transition provision in this paragraph (d) if it has a
positive modified CECL transitional amount during any quarter ending in
2020, and makes the election in the Call Report or FR Y-9C filed for
the same quarter. A Board-regulated institution that does not calculate
a positive modified CECL transitional amount in any quarter is not
required to apply the adjustments in its calculation of regulatory
capital ratios in paragraph (d)(2) of this section in that quarter.
(1) Definitions. For purposes of the 2020 CECL transition provision
calculation in paragraph (d)(2) of this section, the following
definitions apply:
(i) Modified CECL transitional amount means:
(A) During the first two years of the transition period, the
difference between AACL as reported in the most recent Call Report or
FR Y-9C, and the AACL as of the beginning of the fiscal year in which
the Board-regulated institution adopts CECL, multiplied by 0.25, plus
the CECL transitional amount; and
(B) During the last three years of the transition period, the
difference between AACL as reported in the Call Report or Y-9C at the
end of the second year of the transition period and the AACL as of the
beginning of the fiscal year in which the Board-regulated institution
adopts CECL, multiplied by 0.25, plus the CECL transitional amount.
(ii) Modified AACL transitional amount means:
(A) During the first two years of the transition period, the
difference between AACL as reported in the most recent Call Report or
FR Y-9C, and the AACL as of the beginning of the fiscal year in which
the Board-regulated institution adopts CECL, multiplied by 0.25, plus
the AACL transitional amount; and
(B) During the last three years of the transition period, the
difference between AACL as reported in the Call Report or FR Y-9C at
the end of the second year of the transition period and the AACL as of
the beginning of the fiscal year in which the Board-regulated
institution adopts CECL, multiplied by 0.25, plus the AACL transitional
amount.
(2) Calculation of 2020 CECL transition provision. (i) A Board-
regulated institution that has elected the 2020 CECL transition
provision described in this paragraph (d) may make the following
adjustments in its calculation of regulatory capital ratios:
(A) Increase retained earnings by one-hundred percent of its
modified CECL transitional amount during the first year of the
transition period, increase retained earnings by one hundred percent of
its modified CECL transitional amount during the second year of the
transition period, increase retained earnings by seventy-five percent
of its modified CECL transitional amount during the third year of the
transition period, increase retained earnings by fifty percent of its
modified CECL transitional amount during the fourth year of the
transition period, and increase retained earnings by twenty-five
percent of its modified CECL transitional amount 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
[[Page 61591]]
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 or Category III Board-regulated
institution that has elected the 2020 CECL transition provision
described in this paragraph (d) may make the following additional
adjustments to its calculation of its applicable regulatory capital
ratios:
(A) Increase total leverage exposure for purposes of the
supplementary leverage ratio by one-hundred percent of its modified
CECL transitional amount during the first year of the transition
period, increase total leverage exposure for purposes of the
supplementary leverage ratio by one hundred percent of its modified
CECL transitional amount during the second year of the transition
period, increase total leverage exposure for purposes of the
supplementary leverage ratio by seventy-five percent of its modified
CECL transitional amount during the third year of the transition
period, increase total leverage exposure for purposes of the
supplementary leverage ratio by fifty percent of its modified CECL
transitional amount during the fourth year of the transition period,
and increase total leverage exposure for purposes of the supplementary
leverage ratio by twenty-five percent of its modified CECL transitional
amount during the fifth year of the transition period; and
(B) An advanced approaches Board-regulated institution that has
completed the parallel run process and that has received notification
from the Board pursuant to Sec. 217.121(d) must decrease amounts of
eligible credit reserves by one-hundred percent of its eligible credit
reserves transitional amount during the first year of the transition
period, decrease amounts of eligible credit reserves by one hundred
percent of its eligible credit reserves transitional amount during the
second year of the transition period, decrease amounts of eligible
credit reserves by seventy-five percent of its eligible credit reserves
transitional amount during the third year of the transition period,
decrease amounts of eligible credit reserves by fifty percent of its
eligible credit reserves transitional amount during the fourth year of
the transition period, and decrease amounts of eligible credit reserves
by twenty-five percent of its eligible credit reserves transitional
amount during the fifth year of the transition period.
(e) Eligible credit reserves shortfall. An advanced approaches
Board-regulated institution that has completed the parallel run process
and that has received notification from the Board pursuant to 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.
(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
0
For the reasons set forth in the preamble, the interim final rule
amending chapter III of title 12 of the Code of Federal Regulations,
which was published at 85 FR 17723 on March 31, 2020, and amended at 85
FR 29839 on May 19, 2020, is adopted as final with the following
changes:
PART 324--CAPITAL ADEQUACY OF FDIC-SUPERVISED INSTITUTIONS
0
5. The authority citation for part 324 is revised to read as follows:
Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b),
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n),
1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102-233,
105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242,
105 Stat. 2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160,
2233 (12 U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386,
as amended by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828
note); Pub. L. 111-203, 124 Stat. 1376, 1887 (15 U.S.C. 78o-7 note),
Pub. L. 115-174; section 4014, Pub. L. 116-136, 134 Stat. 281 (15
U.S.C. 9052).
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) Except as provided in paragraph (d) of this section, an FDIC-
supervised institution that elects to use the CECL transition provision
must elect to use the CECL transition provision in the
[[Page 61592]]
first Call Report that includes CECL filed by the FDIC-supervised
institution after it adopts CECL.
(3) An FDIC-supervised institution that does not elect to use the
CECL transition provision as of the first Call Report that includes
CECL filed as described in paragraph (a)(2) of this section may not
elect to use the CECL transition provision in subsequent reporting
periods.
(b) Definitions. For purposes of this section, the following
definitions apply:
(1) Transition period means the three-year period, beginning the
first day of the fiscal year in which an FDIC-supervised institution
adopts CECL and reflects CECL in its first Call Report filed after that
date; or, for the 2020 CECL transition provision under paragraph (d) of
this section, the five-year period beginning on the earlier of the date
an FDIC-supervised institution was required to adopt CECL for
accounting purposes under GAAP (as in effect January 1, 2020), or the
first day of the fiscal year that begins during the 2020 calendar year
in which the FDIC-supervised institution files regulatory reports that
include CECL.
(2) CECL transitional amount means the difference, net of any DTAs,
in the amount of an FDIC-supervised institution's retained earnings as
of the beginning of the fiscal year in which the FDIC-supervised
institution adopts CECL from the amount of the FDIC-supervised
institution's retained earnings as of the closing of the fiscal year-
end immediately prior to the FDIC-supervised institution's adoption of
CECL.
(3) DTA transitional amount means the difference in the amount of
an FDIC-supervised institution's DTAs arising from temporary
differences as of the beginning of the fiscal year in which the FDIC-
supervised institution adopts CECL from the amount of the FDIC-
supervised institution's DTAs arising from temporary differences as of
the closing of the fiscal year-end immediately prior to the FDIC-
supervised institution's adoption of CECL.
(4) AACL transitional amount means the difference in the amount of
an FDIC-supervised institution's AACL as of the beginning of the fiscal
year in which the FDIC-supervised institution adopts CECL and the
amount of the FDIC-supervised institution's ALLL as of the closing of
the fiscal year-end immediately prior to the FDIC-supervised
institution's adoption of CECL.
(5) Eligible credit reserves transitional amount means the
difference in the amount of an FDIC-supervised institution's eligible
credit reserves as of the beginning of the fiscal year in which the
FDIC-supervised institution adopts CECL from the amount of the FDIC-
supervised institution's eligible credit reserves as of the closing of
the fiscal year-end immediately prior to the FDIC-supervised
institution's adoption of CECL.
(c) Calculation of the three-year CECL transition provision. (1)
For purposes of the election described in paragraph (a)(1) of this
section and except as provided in paragraph (d) of this section, an
FDIC-supervised institution must make the following adjustments in its
calculation of regulatory capital ratios:
(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 for purposes of the leverage ratio by seventy-five percent
of its CECL transitional amount during the first year of the transition
period, increase average total consolidated assets as reported on the
Call Report for purposes of the leverage ratio by fifty percent of its
CECL transitional amount during the second year of the transition
period, and increase average total consolidated assets as reported on
the Call Report for purposes of the leverage ratio by twenty-five
percent of its CECL transitional amount during the third year of the
transition period.
(2) For purposes of the election described in paragraph (a)(1) of
this section, an advanced approaches or Category III FDIC-supervised
institution must make the following additional adjustments to its
calculation of its applicable regulatory capital ratios:
(i) Increase total leverage exposure for purposes of the
supplementary leverage ratio by seventy-five percent of its CECL
transitional amount during the first year of the transition period,
increase total leverage exposure for purposes of the supplementary
leverage ratio by fifty percent of its CECL transitional amount during
the second year of the transition period, and increase total leverage
exposure for purposes of the supplementary leverage ratio by twenty-
five percent of its CECL transitional amount during the third year of
the transition period; and
(ii) An advanced approaches FDIC-supervised institution that has
completed the parallel run process and that 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) 2020 CECL transition provision. Notwithstanding paragraph (a)
of this section, an FDIC-supervised institution that adopts CECL for
accounting purposes under GAAP as of the first day of a fiscal year
that begins during the 2020 calendar year may elect to use the
transitional amounts and modified transitional amounts in paragraph
(d)(1) of this section with the 2020 CECL transition provision
calculation in paragraph (d)(2) of this section to adjust its
calculation of regulatory capital ratios during each quarter of the
transition period in which an FDIC-supervised institution uses CECL for
purposes of its Call Report. An FDIC supervised-institution may use the
transition provision in this paragraph (d) if it has a positive
modified CECL transitional amount during any quarter ending in 2020 and
makes the election in the Call Report filed for the same quarter. An
FDIC-supervised institution that does not calculate a positive modified
CECL transitional amount in any quarter is not required to apply the
[[Page 61593]]
adjustments in its calculation of regulatory capital ratios in
paragraph (d)(2) of this section in that quarter.
(1) Definitions. For purposes of the 2020 CECL transition provision
calculation in paragraph (d)(2) of this section, the following
definitions apply:
(i) Modified CECL transitional amount means:
(A) During the first two years of the transition period, the
difference between AACL as reported in the most recent Call Report and
the AACL as of the beginning of the fiscal year in which the FDIC-
supervised institution adopts CECL, multiplied by 0.25, plus the CECL
transitional amount; and
(B) During the last three years of the transition period, the
difference between AACL as reported in the Call Report at the end of
the second year of the transition period and the AACL as of the
beginning of the fiscal year in which the FDIC-supervised institution
adopts CECL, multiplied by 0.25, plus the CECL transitional amount.
(ii) Modified AACL transitional amount means:
(A) During the first two years of the transition period, the
difference between AACL as reported in the most recent Call Report, and
the AACL as of the beginning of the fiscal year in which the FDIC-
supervised institution adopts CECL, multiplied by 0.25, plus the AACL
transitional amount; and
(B) During the last three years of the transition period, the
difference between AACL as reported in the Call Report at the end of
the second year of the transition period and the AACL as of the
beginning of the fiscal year in which the 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 elected the 2020 CECL transition
provision described in this paragraph (d) may make the following
adjustments in its calculation of regulatory capital ratios:
(A) Increase retained earnings by one-hundred percent of its
modified CECL transitional amount during the first year of the
transition period, increase retained earnings by one hundred percent of
its modified CECL transitional amount during the second year of the
transition period, increase retained earnings by seventy-five percent
of its modified CECL transitional amount during the third year of the
transition period, increase retained earnings by fifty percent of its
modified CECL transitional amount during the fourth year of the
transition period, and increase retained earnings by twenty-five
percent of its modified CECL transitional amount 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 or Category III FDIC-supervised
institution that has elected the 2020 CECL transition provision
described in this paragraph (d) may make the following additional
adjustments to its calculation of its applicable regulatory capital
ratios:
(A) Increase total leverage exposure for purposes of the
supplementary leverage ratio by one-hundred percent of its modified
CECL transitional amount during the first year of the transition
period, increase total leverage exposure for purposes of the
supplementary leverage ratio by one hundred percent of its modified
CECL transitional amount during the second year of the transition
period, increase total leverage exposure for purposes of the
supplementary leverage ratio by seventy-five percent of its modified
CECL transitional amount during the third year of the transition
period, increase total leverage exposure for purposes of the
supplementary leverage ratio by fifty percent of its modified CECL
transitional amount during the fourth year of the transition period,
and increase total leverage exposure for purposes of the supplementary
leverage ratio by twenty-five percent of its modified CECL transitional
amount during the fifth year of the transition period; and
(B) An advanced approaches FDIC-supervised institution that has
completed the parallel run process and that 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 that has received notification from the
[[Page 61594]]
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.
(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.
Brian P. Brooks,
Acting 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 August 21, 2020.
James P. Sheesley,
Acting Assistant Executive Secretary.
[FR Doc. 2020-19782 Filed 9-29-20; 8:45 am]
BILLING CODE 4810-33-P 6210-01-P 6714-01-P