Statement attempts to square interim rule on CECL compliance with new CARES Act provision

Clarifying the interaction between an interim final rule issued last week, and legislation enacted last week, on delayed implementation of the current expected credit loss (CECL) accounting standard was the aim of a joint statement issued Tuesday by federal banking agencies.

The joint statement notes that on Friday (March 27), the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), and the Office of the Comptroller of the Currency (OCC) issued an interim final rule that provides banking organizations that were required (as of Jan. 1) to adopt CECL during the 2020 calendar year an option to delay an estimate of CECL’s impact on regulatory capital.

Under that joint rule, banking organizations required under U.S. accounting standards to adopt CECL this year can mitigate the estimated cumulative regulatory capital effects for up to two years. The agencies noted that two-year period is in addition to a three-year transition period already in place. They added that, alternatively, “banking organizations can follow the capital transition rule issued by the banking agencies in February 2019.”

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), signed into law (coincidentally) on Friday, the agencies noted, provides banking organizations optional temporary relief from complying with CECL. Under the new law, compliance with the CECL standard would be required after Dec. 31, 2020, or the end of the “national emergency” declared under the legislation – whichever comes first.

FDIC FIL-32-2020: Joint Statement on the Interaction of the CECL Revised Transition Interim Final Rule with Section 4014 of the Coronavirus Aid, Relief, and Economic Security Act