Final rule permits phase-in of CECL’s day-one adverse impacts on FICUs

Federally insured credit unions (FICUs) will be able to phase in over a three-year period the day-one adverse impacts on net worth of the current-expected-credit-loss (CECL) accounting standard under a final rule approved Thursday by the federal credit union regulator.

The rule, which applies to FICUs that adopt CECL for fiscal years beginning on or after Dec. 15, 2022, was adopted by the National Credit Union Administration (NCUA) Board largely as proposed last summer, except as follows:

  • The rule no longer refers to specific calendar dates in the discussion of the transition period for the phase-in and now only refers to fiscal years; and
  • It clarifies that state-chartered FICUs with less than $10 million in assets and that are required by state law to comply with generally accepted accounting principles (GAAP) are eligible for the transition phase-in.

Like the banking regulators’ CECL day-one rules, the NCUA final rule will temporarily mitigate the adverse prompt corrective action (PCA) consequences of day-one capital adjustments while requiring that FICUs account for CECL for other purposes, such as call reports. The agency said the final rule also provides that FICUs with less than $10 million in assets are no longer required to determine their charges for loan losses in accordance with GAAP. Instead, they may use any reasonable reserve methodology (incurred loss) as long as it adequately covers known and probable loan losses.

The agency noted, however, that state-chartered FICUs with less than $10 million in assets and that are required by state law to comply with GAAP are eligible for the transition phase-in.

CECL continues to draw push-back from the industry as well as the two Republican members of the NCUA Board. Kyle Hauptman, the agency’s vice chairman, asserted that CECL is costly to implement yet offers no value where credit unions are concerned since they are not public companies. Board Member Rodney Hood called it a “solution in search of a problem” and said he supports all credit unions being exempt.

NCUA Chairman Todd Harper noted, however, that the accounting standard could have a mitigating effect on future losses to the National Credit Union Share Insurance Fund, and it could also benefit subordinated debt investors in low-income credit unions as well as uninsured depositors.

In the meantime, staff said they’re preparing guidance and training materials for credit unions on CECL implementation. Training sessions for credit unions as well as examiners are expected to begin next year, staff said.

The rule was approved on a board vote of 3-0 and takes effect 30 days after publication in the Federal Register.

Notice for Federal Register

Board action memorandum