Correction clarifies larger banking organizations included under interim rule on CECL transition

A technical correction reinserting “category III” banking organizations into the supplementary leverage ratio provision for capital rules of an interim final rule about a transition period for the impact of current expected credit loss (CECL) accounting rules was addressed Wednesday in a letter from the federal insurer of bank deposits.

In the financial institution letter (FIL-48-2020), the Federal Deposit Insurance Corp. (FDIC) noted that the federal banking agencies adopted a technical correction to their March 31 interim final rule (IFR) that provides a five-year transition period for the impact of the CECL accounting standard on regulatory capital.

The March 31 IFR was meant to clarify the interaction between a March 27 IFR and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed into law the same day.

However, the March 31 IFR left out (unintentionally, the FDIC said) “category III” banking organizations from the supplementary leverage ratio provision of the capital rules. Those are banking organizations with $250 billion or more in total consolidated assets; or $75 billion or more in weighted short-term wholesale funding, nonbank assets, or off-balance-sheet exposure; or those that do not meet the criteria for categories I or II.

The IFR, the agency also noted, clarifies that changes to the calculation of the supplementary leverage ratio apply to all banking organizations that must comply with the supplementary leverage ratio requirement. It also clarifies that “to the extent there is a day-one change for retained earnings, temporary difference deferred tax assets and credit loss allowances, an electing banking organization would calculate each transitional amount as a positive or negative number.”

FDIC FIL-48-2020: Technical Corrections to the Revised Transition of the Current Expected Credit Losses Methodology for Allowances

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