Agencies Propose Phase-in for Regulatory Capital Effects of CECL

A new joint proposal from the Federal Reserve, FDIC and the OCC will give banks the option to phase in the regulatory capital effects of the Current Expected Credit Loss standard, the Federal Reserve announced today. The agencies will accept comments on the proposal for 60 days after publication in the Federal Register.

The CECL standard, which goes into effect in 2020 for SEC registrants and 2021 for other banks, requires an estimate of expected credit losses over the life of the portfolio to be effectively recorded upon origination. However, under the proposal, banks will have the option of phasing in the day-one regulatory capital effects of CECL over three years.

In addition to technical changes related to large banks, the agencies also proposed to exclude consideration of CECL within stress testing until the 2020 cycle. This would avoid splitting two different accounting standards within the nine-quarter forecasting horizon.

Since CECL was finalized in 2016, ABA has been heavily engaged with regulators on how the standard will affect bank operations, capital and regulatory supervision. Earlier this year, association staff and several member banks met with the agencies to discuss a number of CECL-related issues, including those addressed in the proposal. For more information, contact ABA’s Mike Gullette or Barry Mills.