22312 Federal Register / Vol. 83, No. 93 / Monday, May 14, 2018 / Proposed Rules
DEPARTMENT OF TREASURY
Office of the Comptroller of the
Currency
12 CFR Parts 1, 3, 5, 23, 24, 32, 34, and
46
[Docket ID OCC–2018–0009]
RIN 1557–AE32
FEDERAL RESERVE SYSTEM
12 CFR Parts 208, 211, 215, 217, 223,
225, and 252
[Regulation Q; Docket No. R–1605]
RIN 7100–AF04
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Parts 324, 325, 327, 347, and
390
RIN 3064–AE74
Regulatory Capital Rules:
Implementation and Transition of the
Current Expected Credit Losses
Methodology for Allowances and
Related Adjustments to the Regulatory
Capital Rules and Conforming
Amendments to Other Regulations
AGENCY: Office of the Comptroller of the
Currency (OCC), the Board of Governors
of the Federal Reserve System (Board),
and the Federal Deposit Insurance
Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
SUMMARY: The Office of the Comptroller
of the Currency, the Board of Governors
of the Federal Reserve System, and the
Federal Deposit Insurance Corporation
(collectively, the agencies) are inviting
public comment on a joint proposal to
address changes to U.S. generally
accepted accounting principles (U.S.
GAAP) described in Accounting
Standards Update No. 2016–13, Topic
326, Financial Instruments—Credit
Losses (ASU 2016–13), including
banking organizations’ implementation
of the current expected credit losses
methodology. Specifically, the proposal
would revise the agencies’ regulatory
capital rules to identify which credit
loss allowances under the new
accounting standard are eligible for
inclusion in regulatory capital and to
provide banking organizations the
option to phase in the day-one adverse
effects on regulatory capital that may
result from the adoption of the new
accounting standard. The proposal also
would amend certain regulatory
disclosure requirements to reflect
applicable changes to U.S. GAAP
covered under ASU 2016–13. In
addition, the agencies are proposing to
make amendments to their stress testing
regulations so that covered banking
organizations that have adopted ASU
2016–13 would not include the effect of
ASU 2016–13 on their provisioning for
purposes of stress testing until the 2020
stress test cycle. Finally, the agencies
are proposing to make conforming
amendments to their other regulations
that reference credit loss allowances.
DATES: Comments must be received by
July 13, 2018.
ADDRESSES: Comments should be
directed to:
OCC: You may submit comments to
the OCC by any of the methods set forth
below. Commenters are encouraged to
submit comments through the Federal
eRulemaking Portal or email, if possible.
Please use the title ‘‘Regulatory Capital
Rules: Implementation and Transition of
the Current Expected Credit Losses
Methodology for Allowances and
Related Adjustments to the Regulatory
Capital Rules and Conforming
Amendments to Other Regulations’’ to
facilitate the organization and
distribution of the comments. You may
submit comments by any of the
following methods:
• Federal eRulemaking Portal—
‘‘Regulations.gov’’: Go to
www.regulations.gov. Enter ‘‘Docket ID
OCC–2018–0009’’ in the Search Box and
click ‘‘Search.’’ Click on ‘‘Comment
Now’’ to submit public comments.
• Click on the ‘‘Help’’ tab on the
Regulations.gov home page to get
information on using Regulations.gov,
including instructions for submitting
public comments.
• Email: regs.comments@
occ.treas.gov.
• Mail: Legislative and Regulatory
Activities Division, Office of the
Comptroller of the Currency, 400 7th
Street SW, suite 3E–218, Washington,
DC 20219.
• Hand Delivery/Courier: 400 7th
Street SW, suite 3E–218, Washington,
DC 20219.
• Fax: (571) 465–4326.
Instructions: You must include
‘‘OCC’’ as the agency name and ‘‘Docket
ID OCC–2018–0009’’ in your comment.
In general, the OCC will enter all
comments received into the docket and
publish them on the Regulations.gov
website without change, including any
business or personal information that
you provide such as name and address
information, email addresses, or phone
numbers. Comments received, including
attachments and other supporting
materials, are part of the public record
and subject to public disclosure. Do not
include any information in your
comment or supporting materials that
you consider confidential or
inappropriate for public disclosure.
You may review comments and other
related materials that pertain to this
rulemaking action by any of the
following methods:
• Viewing Comments Electronically:
Go to www.regulations.gov. Enter
‘‘Docket ID OCC–2018–0009’’ in the
Search box and click ‘‘Search.’’ Click on
‘‘Open Docket Folder’’ on the right side
of the screen. Comments and supporting
materials can be viewed and filtered by
clicking on ‘‘View all documents and
comments in this docket’’ and then
using the filtering tools on the left side
of the screen.
• Click on the ‘‘Help’’ tab on the
Regulations.gov home page to get
information on using Regulations.gov.
The docket may be viewed after the
close of the comment period in the same
manner as during the comment period.
Viewing Comments Personally: You
may personally inspect comments at the
OCC, 400 7th Street SW, Washington,
DC 20219. For security reasons, the OCC
requires that visitors make an
appointment to inspect comments. You
may do so by calling (202) 649–6700 or,
for persons who are hearing impaired,
TTY, (202) 649–5597. Upon arrival,
visitors will be required to present valid
government-issued photo identification
and submit to security screening in
order to inspect comments.
Board: You may submit comments,
identified by Docket No. R–1605 and
RIN 7100–AF04, by any of the following
methods:
• Agency Website: http://
www.federalreserve.gov. Follow the
instructions for submitting comments at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
• Email: regs.comments@
federalreserve.gov. Include docket
number in the subject line of the
message.
• Fax: (202) 452–3819 or (202) 452–
3102.
• Mail: Ann E. Misback, Secretary,
Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue NW, Washington,
DC 20551. All public comments are
available from the Board’s website at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical
reasons or to remove sensitive PII at the
commenter’s request. Public comments
may also be viewed electronically or in
paper form in Room 3515, 1801 K Street
NW (between 18th and 19th Streets
NW), Washington, DC 20006 between
9:00 a.m. and 5:00 p.m. on weekdays.
VerDate Sep<11>2014 18:34 May 11, 2018 Jkt 244001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 E:\FR\FM\14MYP2.SGM 14MYP2
amozie on DSK3GDR082PROD with PROPOSALS1
DEPARTMENT OF TREASURY
Office of the Comptroller of the
Currency
12 CFR Parts 1, 3, 5, 23, 24, 32, 34, and
46
[Docket ID OCC–2018–0009]
RIN 1557–AE32
FEDERAL RESERVE SYSTEM
12 CFR Parts 208, 211, 215, 217, 223,
225, and 252
[Regulation Q; Docket No. R–1605]
RIN 7100–AF04
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Parts 324, 325, 327, 347, and
390
RIN 3064–AE74
Regulatory Capital Rules:
Implementation and Transition of the
Current Expected Credit Losses
Methodology for Allowances and
Related Adjustments to the Regulatory
Capital Rules and Conforming
Amendments to Other Regulations
AGENCY: Office of the Comptroller of the
Currency (OCC), the Board of Governors
of the Federal Reserve System (Board),
and the Federal Deposit Insurance
Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
SUMMARY: The Office of the Comptroller
of the Currency, the Board of Governors
of the Federal Reserve System, and the
Federal Deposit Insurance Corporation
(collectively, the agencies) are inviting
public comment on a joint proposal to
address changes to U.S. generally
accepted accounting principles (U.S.
GAAP) described in Accounting
Standards Update No. 2016–13, Topic
326, Financial Instruments—Credit
Losses (ASU 2016–13), including
banking organizations’ implementation
of the current expected credit losses
methodology. Specifically, the proposal
would revise the agencies’ regulatory
capital rules to identify which credit
loss allowances under the new
accounting standard are eligible for
inclusion in regulatory capital and to
provide banking organizations the
option to phase in the day-one adverse
effects on regulatory capital that may
result from the adoption of the new
accounting standard. The proposal also
would amend certain regulatory
disclosure requirements to reflect
applicable changes to U.S. GAAP
covered under ASU 2016–13. In
addition, the agencies are proposing to
make amendments to their stress testing
regulations so that covered banking
organizations that have adopted ASU
2016–13 would not include the effect of
ASU 2016–13 on their provisioning for
purposes of stress testing until the 2020
stress test cycle. Finally, the agencies
are proposing to make conforming
amendments to their other regulations
that reference credit loss allowances.
DATES: Comments must be received by
July 13, 2018.
ADDRESSES: Comments should be
directed to:
OCC: You may submit comments to
the OCC by any of the methods set forth
below. Commenters are encouraged to
submit comments through the Federal
eRulemaking Portal or email, if possible.
Please use the title ‘‘Regulatory Capital
Rules: Implementation and Transition of
the Current Expected Credit Losses
Methodology for Allowances and
Related Adjustments to the Regulatory
Capital Rules and Conforming
Amendments to Other Regulations’’ to
facilitate the organization and
distribution of the comments. You may
submit comments by any of the
following methods:
• Federal eRulemaking Portal—
‘‘Regulations.gov’’: Go to
www.regulations.gov. Enter ‘‘Docket ID
OCC–2018–0009’’ in the Search Box and
click ‘‘Search.’’ Click on ‘‘Comment
Now’’ to submit public comments.
• Click on the ‘‘Help’’ tab on the
Regulations.gov home page to get
information on using Regulations.gov,
including instructions for submitting
public comments.
• Email: regs.comments@
occ.treas.gov.
• Mail: Legislative and Regulatory
Activities Division, Office of the
Comptroller of the Currency, 400 7th
Street SW, suite 3E–218, Washington,
DC 20219.
• Hand Delivery/Courier: 400 7th
Street SW, suite 3E–218, Washington,
DC 20219.
• Fax: (571) 465–4326.
Instructions: You must include
‘‘OCC’’ as the agency name and ‘‘Docket
ID OCC–2018–0009’’ in your comment.
In general, the OCC will enter all
comments received into the docket and
publish them on the Regulations.gov
website without change, including any
business or personal information that
you provide such as name and address
information, email addresses, or phone
numbers. Comments received, including
attachments and other supporting
materials, are part of the public record
and subject to public disclosure. Do not
include any information in your
comment or supporting materials that
you consider confidential or
inappropriate for public disclosure.
You may review comments and other
related materials that pertain to this
rulemaking action by any of the
following methods:
• Viewing Comments Electronically:
Go to www.regulations.gov. Enter
‘‘Docket ID OCC–2018–0009’’ in the
Search box and click ‘‘Search.’’ Click on
‘‘Open Docket Folder’’ on the right side
of the screen. Comments and supporting
materials can be viewed and filtered by
clicking on ‘‘View all documents and
comments in this docket’’ and then
using the filtering tools on the left side
of the screen.
• Click on the ‘‘Help’’ tab on the
Regulations.gov home page to get
information on using Regulations.gov.
The docket may be viewed after the
close of the comment period in the same
manner as during the comment period.
Viewing Comments Personally: You
may personally inspect comments at the
OCC, 400 7th Street SW, Washington,
DC 20219. For security reasons, the OCC
requires that visitors make an
appointment to inspect comments. You
may do so by calling (202) 649–6700 or,
for persons who are hearing impaired,
TTY, (202) 649–5597. Upon arrival,
visitors will be required to present valid
government-issued photo identification
and submit to security screening in
order to inspect comments.
Board: You may submit comments,
identified by Docket No. R–1605 and
RIN 7100–AF04, by any of the following
methods:
• Agency Website: http://
www.federalreserve.gov. Follow the
instructions for submitting comments at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
• Email: regs.comments@
federalreserve.gov. Include docket
number in the subject line of the
message.
• Fax: (202) 452–3819 or (202) 452–
3102.
• Mail: Ann E. Misback, Secretary,
Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue NW, Washington,
DC 20551. All public comments are
available from the Board’s website at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical
reasons or to remove sensitive PII at the
commenter’s request. Public comments
may also be viewed electronically or in
paper form in Room 3515, 1801 K Street
NW (between 18th and 19th Streets
NW), Washington, DC 20006 between
9:00 a.m. and 5:00 p.m. on weekdays.
VerDate Sep<11>2014 18:34 May 11, 2018 Jkt 244001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 E:\FR\FM\14MYP2.SGM 14MYP2
amozie on DSK3GDR082PROD with PROPOSALS1
22313Federal Register / Vol. 83, No. 93 / Monday, May 14, 2018 / Proposed Rules
1 ASU No. 2016–13 introduces ASC Topic 326
which covers measurement of credit losses on
financial instruments and includes three subtopics:
(i) Subtopic 10 Financial Instruments—Credit
Losses—Overall; (ii) Subtopic 20: Financial
Instruments—Credit Losses—Measured at
Amortized Cost; and (iii) Subtopic 30: Financial
Instruments—Credit Losses—Available-for-Sale
Debt Securities.
2 Banking organizations subject to the capital
rules include national banks, state member banks,
state nonmember banks, savings associations, and
top-tier bank holding companies and savings and
loan holding companies domiciled in the United
States not subject to the Board’s Small Bank
Holding Company Policy Statement (12 CFR part
225, appendix C), but exclude certain savings and
loan holding companies that are substantially
engaged in insurance underwriting or commercial
activities or that are estate trusts, and bank holding
companies and savings and loan holding companies
that are employee stock ownership plans.
3 12 CFR part 3 (OCC); 12 CFR part 217 (Board);
12 CFR part 324 (FDIC).
4 See 12 U.S.C. 1831n; see also Instructions for
Preparation of Consolidated Financial Statements
for Holding Companies, Reporting Form FR Y–9C
(Reissued March 2013); Instructions for Preparation
of Consolidated Reports of Condition and Income,
Reporting Forms FFIEC 031 and FFIEC 041 (last
update September 2017); Instructions for
Preparation of Consolidated Reports of Condition
and Income for a Bank with Domestic Offices Only
and Total Assets Less than $1 Billion, Reporting
Form FFIEC 051 (last update September 2017).
FDIC: You may submit comments,
identified by RIN 3064–AE74, by any of
the following methods:
• Agency Website: https://
www.fdic.gov/regulations/laws/federal/.
Follow instructions for submitting
comments on the Agency website.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments/Legal
ESS, Federal Deposit Insurance
Corporation, 550 17th Street NW,
Washington, DC 20429.
• Hand Delivery/Courier: Comments
may be hand-delivered to the guard
station at the rear of the 550 17th Street
Building (located on F Street) on
business days between 7:00 a.m. and
5:00 p.m.
• Email: comments@FDIC.gov.
Include RIN 3064–AE74 on the subject
line of the message.
• Public Inspection: All comments
received must include the agency name
and RIN 3064–AE74 for this rulemaking.
All comments received will be posted
without change to http://www.fdic.gov/
regulations/laws/federal/, including any
personal information provided. Paper
copies of public comments may be
ordered from the FDIC Public
Information Center, 3501 North Fairfax
Drive, Room E–1002, Arlington, VA
22226, or by telephone at (877) 275–
3342 or (703) 562–2200.
FOR FURTHER INFORMATION CONTACT:
OCC: Mark Ginsberg, Senior Risk
Expert, (202) 649–6983; or Kevin
Korzeniewski, Counsel, Legislative and
Regulatory Activities Division, (202)
649–5490; or for persons who are
hearing impaired, TTY, (202) 649–5597.
Board: Constance M. Horsley, Deputy
Associate Director, (202) 452–5239; Juan
Climent, Manager, (202) 872–7526;
Andrew Willis, Senior Supervisory
Financial Analyst, (202) 912–4323; or
Noah Cuttler, Senior Financial Analyst,
(202) 912–4678, Division of Supervision
and Regulation; or Benjamin W.
McDonough, Assistant General Counsel,
(202) 452–2036; David W. Alexander,
Counsel, (202) 452–2877; or Asad
Kudiya, Senior Attorney, (202) 475–
6358, Legal Division, Board of
Governors of the Federal Reserve
System, 20th and C Streets NW,
Washington, DC 20551. For the hearing
impaired only, Telecommunication
Device for the Deaf, (202) 263–4869.
FDIC: Benedetto Bosco, Chief,
bbosco@fdic.gov; David Riley, Senior
Policy Analyst, dariley@fdic.gov;
Richard Smith, Capital Markets Policy
Analyst, rsmith@fdic.gov; Michael
Maloney, Senior Policy Analyst,
mmaloney@fdic.gov; Capital Markets
Branch, Division of Risk Management
Supervision, regulatorycapital@fdic.gov,
(202) 898–6888; or Michael Phillips,
Acting Supervisory Counsel, mphillips@
fdic.gov; Catherine Wood, Counsel,
cawood@fdic.gov; or Benjamin Klein,
Counsel, bklein@fdic.gov; Supervision
Branch, Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street
NW, Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Overview of Changes to U.S. Generally
Accepted Accounting Principles
B. Regulatory Capital
II. Description of the Proposed Rule
A. Proposed Revisions to the Capital Rules
To Reflect the Change in U.S. GAAP
1. Introduction of Allowance for Credit
Losses as a Newly Defined Term
2. Definition of Carrying Value
i. Available-for-Sale Debt Securities
ii. Purchased Credit-Deteriorated Assets
3. Additional Considerations
B. CECL Transition Provision
1. Election of the Optional CECL Transition
Provision
2. Mechanics of the CECL Transition
Provision
3. CECL Transition Provision Time Period
4. Business Combinations
5. Supervisory Oversight
C. Additional Requirements for Advanced
Approaches Banking Organizations
D. Disclosures and Regulatory Reporting
E. Conforming Changes to Other Agency
Regulations
1. OCC Regulations
2. Board Regulations
3. FDIC Regulations
F. Additional Requests for Comments
III. Regulatory Analyses
A. Paperwork Reduction Act
B. Regulatory Flexibility Act
C. Plain Language
D. OCC Unfunded Mandates Reform Act of
1995
E. Riegle Community Development and
Regulatory Improvement Act of 1994
I. Background
A. Overview of Changes to U.S.
Generally Accepted Accounting
Principles
In June 2016, the Financial
Accounting Standards Board (FASB)
issued Accounting Standards Update
(ASU) No. 2016–13, Topic 326,
Financial Instruments—Credit Losses,1
which revises the accounting for credit
losses under U.S. generally accepted
accounting principles (U.S. GAAP).
ASU No. 2016–13 introduces the
current expected credit losses
methodology (CECL), which replaces
the incurred loss methodology for
financial assets measured at amortized
cost, and the term, purchased credit-
deteriorated (PCD) assets, which
replaces the term, purchased credit-
impaired (PCI) assets, and modifies the
treatment of credit losses on available-
for-sale (AFS) debt securities.
The new accounting standard for
credit losses will apply to all banking
organizations 2 that are subject to the
regulatory capital rules 3 (capital rules)
of the Office of the Comptroller of the
Currency (OCC), the Board of Governors
of the Federal Reserve System (Board),
and the Federal Deposit Insurance
Corporation (FDIC) (collectively, the
agencies), and that file regulatory
reports for which the reporting
requirements are required to conform to
U.S. GAAP.4
CECL differs from the incurred loss
methodology in several key respects.
First, CECL requires banking
organizations to recognize lifetime
expected credit losses for financial
assets measured at amortized cost, not
just those credit losses that have been
incurred as of the reporting date. CECL
also requires the incorporation of
reasonable and supportable forecasts in
developing an estimate of lifetime
expected credit losses, while
maintaining the current requirement for
banking organizations to consider past
events and current conditions.
Furthermore, the probable threshold for
recognition of allowances in accordance
with the incurred loss methodology is
removed under CECL. Taken together,
estimating expected credit losses over
the life of an asset under CECL,
including consideration of reasonable
and supportable forecasts but without
applying the probable threshold that
exists under the incurred loss
VerDate Sep<11>2014 18:34 May 11, 2018 Jkt 244001 PO 00000 Frm 00003 Fmt 4701 Sfmt 4702 E:\FR\FM\14MYP2.SGM 14MYP2
amozie on DSK3GDR082PROD with PROPOSALS1
1 ASU No. 2016–13 introduces ASC Topic 326
which covers measurement of credit losses on
financial instruments and includes three subtopics:
(i) Subtopic 10 Financial Instruments—Credit
Losses—Overall; (ii) Subtopic 20: Financial
Instruments—Credit Losses—Measured at
Amortized Cost; and (iii) Subtopic 30: Financial
Instruments—Credit Losses—Available-for-Sale
Debt Securities.
2 Banking organizations subject to the capital
rules include national banks, state member banks,
state nonmember banks, savings associations, and
top-tier bank holding companies and savings and
loan holding companies domiciled in the United
States not subject to the Board’s Small Bank
Holding Company Policy Statement (12 CFR part
225, appendix C), but exclude certain savings and
loan holding companies that are substantially
engaged in insurance underwriting or commercial
activities or that are estate trusts, and bank holding
companies and savings and loan holding companies
that are employee stock ownership plans.
3 12 CFR part 3 (OCC); 12 CFR part 217 (Board);
12 CFR part 324 (FDIC).
4 See 12 U.S.C. 1831n; see also Instructions for
Preparation of Consolidated Financial Statements
for Holding Companies, Reporting Form FR Y–9C
(Reissued March 2013); Instructions for Preparation
of Consolidated Reports of Condition and Income,
Reporting Forms FFIEC 031 and FFIEC 041 (last
update September 2017); Instructions for
Preparation of Consolidated Reports of Condition
and Income for a Bank with Domestic Offices Only
and Total Assets Less than $1 Billion, Reporting
Form FFIEC 051 (last update September 2017).
FDIC: You may submit comments,
identified by RIN 3064–AE74, by any of
the following methods:
• Agency Website: https://
www.fdic.gov/regulations/laws/federal/.
Follow instructions for submitting
comments on the Agency website.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments/Legal
ESS, Federal Deposit Insurance
Corporation, 550 17th Street NW,
Washington, DC 20429.
• Hand Delivery/Courier: Comments
may be hand-delivered to the guard
station at the rear of the 550 17th Street
Building (located on F Street) on
business days between 7:00 a.m. and
5:00 p.m.
• Email: comments@FDIC.gov.
Include RIN 3064–AE74 on the subject
line of the message.
• Public Inspection: All comments
received must include the agency name
and RIN 3064–AE74 for this rulemaking.
All comments received will be posted
without change to http://www.fdic.gov/
regulations/laws/federal/, including any
personal information provided. Paper
copies of public comments may be
ordered from the FDIC Public
Information Center, 3501 North Fairfax
Drive, Room E–1002, Arlington, VA
22226, or by telephone at (877) 275–
3342 or (703) 562–2200.
FOR FURTHER INFORMATION CONTACT:
OCC: Mark Ginsberg, Senior Risk
Expert, (202) 649–6983; or Kevin
Korzeniewski, Counsel, Legislative and
Regulatory Activities Division, (202)
649–5490; or for persons who are
hearing impaired, TTY, (202) 649–5597.
Board: Constance M. Horsley, Deputy
Associate Director, (202) 452–5239; Juan
Climent, Manager, (202) 872–7526;
Andrew Willis, Senior Supervisory
Financial Analyst, (202) 912–4323; or
Noah Cuttler, Senior Financial Analyst,
(202) 912–4678, Division of Supervision
and Regulation; or Benjamin W.
McDonough, Assistant General Counsel,
(202) 452–2036; David W. Alexander,
Counsel, (202) 452–2877; or Asad
Kudiya, Senior Attorney, (202) 475–
6358, Legal Division, Board of
Governors of the Federal Reserve
System, 20th and C Streets NW,
Washington, DC 20551. For the hearing
impaired only, Telecommunication
Device for the Deaf, (202) 263–4869.
FDIC: Benedetto Bosco, Chief,
bbosco@fdic.gov; David Riley, Senior
Policy Analyst, dariley@fdic.gov;
Richard Smith, Capital Markets Policy
Analyst, rsmith@fdic.gov; Michael
Maloney, Senior Policy Analyst,
mmaloney@fdic.gov; Capital Markets
Branch, Division of Risk Management
Supervision, regulatorycapital@fdic.gov,
(202) 898–6888; or Michael Phillips,
Acting Supervisory Counsel, mphillips@
fdic.gov; Catherine Wood, Counsel,
cawood@fdic.gov; or Benjamin Klein,
Counsel, bklein@fdic.gov; Supervision
Branch, Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street
NW, Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Overview of Changes to U.S. Generally
Accepted Accounting Principles
B. Regulatory Capital
II. Description of the Proposed Rule
A. Proposed Revisions to the Capital Rules
To Reflect the Change in U.S. GAAP
1. Introduction of Allowance for Credit
Losses as a Newly Defined Term
2. Definition of Carrying Value
i. Available-for-Sale Debt Securities
ii. Purchased Credit-Deteriorated Assets
3. Additional Considerations
B. CECL Transition Provision
1. Election of the Optional CECL Transition
Provision
2. Mechanics of the CECL Transition
Provision
3. CECL Transition Provision Time Period
4. Business Combinations
5. Supervisory Oversight
C. Additional Requirements for Advanced
Approaches Banking Organizations
D. Disclosures and Regulatory Reporting
E. Conforming Changes to Other Agency
Regulations
1. OCC Regulations
2. Board Regulations
3. FDIC Regulations
F. Additional Requests for Comments
III. Regulatory Analyses
A. Paperwork Reduction Act
B. Regulatory Flexibility Act
C. Plain Language
D. OCC Unfunded Mandates Reform Act of
1995
E. Riegle Community Development and
Regulatory Improvement Act of 1994
I. Background
A. Overview of Changes to U.S.
Generally Accepted Accounting
Principles
In June 2016, the Financial
Accounting Standards Board (FASB)
issued Accounting Standards Update
(ASU) No. 2016–13, Topic 326,
Financial Instruments—Credit Losses,1
which revises the accounting for credit
losses under U.S. generally accepted
accounting principles (U.S. GAAP).
ASU No. 2016–13 introduces the
current expected credit losses
methodology (CECL), which replaces
the incurred loss methodology for
financial assets measured at amortized
cost, and the term, purchased credit-
deteriorated (PCD) assets, which
replaces the term, purchased credit-
impaired (PCI) assets, and modifies the
treatment of credit losses on available-
for-sale (AFS) debt securities.
The new accounting standard for
credit losses will apply to all banking
organizations 2 that are subject to the
regulatory capital rules 3 (capital rules)
of the Office of the Comptroller of the
Currency (OCC), the Board of Governors
of the Federal Reserve System (Board),
and the Federal Deposit Insurance
Corporation (FDIC) (collectively, the
agencies), and that file regulatory
reports for which the reporting
requirements are required to conform to
U.S. GAAP.4
CECL differs from the incurred loss
methodology in several key respects.
First, CECL requires banking
organizations to recognize lifetime
expected credit losses for financial
assets measured at amortized cost, not
just those credit losses that have been
incurred as of the reporting date. CECL
also requires the incorporation of
reasonable and supportable forecasts in
developing an estimate of lifetime
expected credit losses, while
maintaining the current requirement for
banking organizations to consider past
events and current conditions.
Furthermore, the probable threshold for
recognition of allowances in accordance
with the incurred loss methodology is
removed under CECL. Taken together,
estimating expected credit losses over
the life of an asset under CECL,
including consideration of reasonable
and supportable forecasts but without
applying the probable threshold that
exists under the incurred loss
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