FDIC final rule eliminates double counting of some capital related to CECL transition

A final rule removing the double counting of some of the optional portions of capital related to the transition to the current-expected-credit-loss (CECL) accounting standard was adopted Tuesday by the Federal Deposit Insurance Corp. (FDIC) Board.

The final rule, approved by notation vote, reflects without change the rule proposed for comment last December. That rule proposed changes to the risk-based deposit insurance assessment system applicable to all large insured depository institutions (IDIs), including highly complex IDIs, to address the temporary deposit insurance effects resulting from certain optional regulatory capital transition provisions relating to the implementation of the CECL methodology.

The FDIC issued a Financial Institution (FIL) on the rule Tuesday. Effective April 1, according to that letter:

  • The final rule removes the double counting of a specified portion of the CECL transitional amounts in certain financial measures that are used to determine assessment rates for large or highly complex insured depository institutions (IDIs).
  • The calculation of the loss severity measure is adjusted to remove the double counting of a specified portion of the CECL transitional amounts for large or highly complex IDIs.
  • The FDIC is continuing to allow the application of the CECL regulatory capital transition provisions to the Tier 1 leverage ratio used in determining deposit insurance assessment rates for all IDIs.
  • In order to implement these adjustments, the final rule requires large or highly complex IDIs that elect a CECL transition provision to report one additional, temporary item on the Consolidated Reports of Condition and Income (call report).