The implementation of the new “current expected credit losses” (CECL) accounting standard – beginning as early as the end of this year – is spurring federal banking agencies to gear up, including by sponsoring a national conference call for financial institutions less than two weeks from now on the impact of the methodology.
The call, according to the agencies, will address “certain proposed changes” to their capital rules. Those include: the definition of a new term, “Allowance for Credit Losses”; a revised definition of carry value for available-for-sale debt securities and purchased credit deteriorated assets; mechanics of the proposed CECL transition provision; and new disclosure and regulatory reporting requirements.
Sponsored by the agencies (Federal Deposit Insurance Corp. [FDIC], Federal Reserve, and the Office of the Comptroller of the Currency [OCC]), the May 15 conference call will run from 1-2 p.m. ET, the FDIC said Friday in a “Financial Institution Letter” (FIL) sent to all insured institutions.
According to the FIL, a question-and-answer session will follow the presentation on the proposed changes to the agencies’ capital rules. “We encourage participants to submit questions via email before the webinar to email@example.com,” the FIL states.
The CECL accounting standard – which was published by the Financial Accounting Standards Board (FASB) in June 2016 – takes effect in 2020 and 2021, depending on a financial institution’s characteristics. Early application is permitted for fiscal years beginning after Dec. 15 of this year, including interim periods within those fiscal years
The new standard (and methodology) is aimed at estimating allowances for credit losses. It applies to all financial assets carried at amortized cost (including loans held for investment and held-to-maturity debt securities), a lessor’s net investments in leases, and certain off-balance-sheet credit exposures such as loan commitments and standby letters of credit. Additionally, although the accounting standard does not apply to available-for-sale debt securities, it modifies the existing accounting for impairment on such securities.
Last month, both the FDIC and the Federal Reserve proposed to revise their regulatory capital rules to give banks and other financial institutions the option to phase in the day-one effects of the CECL standard over a three-year period. The option would be available to institutions upon their adoption of the new accounting standard. Additionally, the proposal would revise the agency’s regulatory capital rules and other rules to take into consideration differences between the new accounting standard and existing U.S. generally accepted accounting principles (GAAP).
The proposals were issued with 60-day comment periods.
FIL-23-2018: Banker Teleconference: Implementation and Transition of the Current Expected Credit Losses (CECL) Methodology for Allowances and Related Adjustments to the Regulatory Capital Rules and Conforming Amendments to Other Regulations