(a) CECL transition
provision.
(1) Except
as provided in paragraph (d) of this section, a Board-regulated institution
may elect to use a CECL transition provision pursuant to this section
only if the Board-regulated institution records a reduction in retained
earnings due to the adoption of CECL as of the beginning of the fiscal
year in which the Board-regulated institution adopts CECL.
(2) Except as provided in paragraph (d)
of this section, a Board-regulated institution that elects to use
the CECL transition provision must elect to use the CECL transition
provision in the first Call Report or FR Y-9C that includes CECL filed
by the Board-regulated institution after it adopts CECL.
(3) A Board-regulated institution that
does not elect to use the CECL transition provision as of the first
Call Report or FR Y-9C that includes CECL filed as described in paragraph
(a)(2) of this section may not elect to use the CECL transition provision
in subsequent reporting periods.
(b) Definitions. For purposes of this section,
the following definitions apply:
(1) Transition period means the
three-year period beginning the first day of the fiscal year in which
a Board-regulated institution adopts CECL and reflects CECL in its
first Call Report or FR Y-9C filed after that date; or, for the 2020
CECL transition provision under paragraph (d) of this section, the
five-year period beginning on the earlier of the date a Board-regulated
institution was required to adopt CECL for accounting purposes under
GAAP (as in effect January 1, 2020), or the first day of the fiscal
year that begins during the 2020 calendar year in which the Board-regulated
institution files regulatory reports that include CECL.
(2) CECL transitional amount means
the difference net of any DTAs, in the amount of a Board-regulated
institution’s retained earnings as of the beginning of the fiscal
year in which the Board-regulated institution adopts CECL from the
amount of the Board-regulated institution’s retained earnings as of
the closing of the fiscal year-end immediately prior to the Board-regulated
institution’s adoption of CECL.
(3) DTA transitional amount means the difference in the amount
of a Board-regulated institution’s DTAs arising from temporary differences
as of the beginning of the fiscal year in which the Board-regulated
institution adopts CECL from the amount of the Board-regulated institution’s
DTAs arising from temporary differences as of the closing of
the fiscal year-end immediately prior to the Board-regulated institution’s
adoption of CECL.
(4) AACL transitional
amount means the difference in the amount of a Board-regulated
institution’s AACL as of the beginning of the fiscal year in which
the Board-regulated institution adopts CECL and the amount of the
Board-regulated institution’s ALLL as of the closing of the fiscal
year-end immediately prior to the Board-regulated institution’s adoption
of CECL.
(5) Eligible credit
reserves transitional amount means the difference in the amount
of a Board-regulated institution’s eligible credit reserves as of
the beginning of the fiscal year in which the Board-regulated institution
adopts CECL from the amount of the Board-regulated institution’s eligible
credit reserves as of the closing of the fiscal year-end immediately
prior to the Board-regulated institution’s adoption of CECL.
(c) Calculation of the three-year CECL
transition provision.
(1) For purposes of the election described in paragraph (a)(1) of
this section and except as provided in paragraph (d) of this section,
a Board-regulated institution must make the following adjustments
in its calculation of regulatory capital ratios:
(i) Increase retained earnings by 75
percent of its CECL transitional amount during the first year of the
transition period, increase retained earnings by 50 percent of its
CECL transitional amount during the second year of the transition
period, and increase retained earnings by 25 percent of its CECL transitional
amount during the third year of the transition period;
(ii) Decrease amounts of DTAs arising
from temporary differences by 75 percent of its DTA transitional amount
during the first year of the transition period, decrease amounts of
DTAs arising from temporary differences by 50 percent of its DTA transitional
amount during the second year of the transition period, and decrease
amounts of DTAs arising from temporary differences by 25 percent of
its DTA transitional amount during the third year of the transition
period;
(iii) Decrease amounts
of AACL by 75 percent of its AACL transitional amount during the first
year of the transition period, decrease amounts of AACL by 50 percent
of its AACL transitional amount during the second year of the transition
period, and decrease amounts of AACL by 25 percent of its AACL transitional
amount during the third year of the transition period; and
(iv) Increase average total consolidated
assets as reported on the Call Report or FR Y-9C for purposes of the
leverage ratio by 75 percent of its CECL transitional amount during
the first year of the transition period, increase average total consolidated
assets as reported on the Call Report or FR Y-9C for purposes of the
leverage ratio by 50 percent of its CECL transitional amount during
the second year of the transition period, and increase average total
consolidated assets as reported on the Call Report or FR Y-9C for
purposes of the leverage ratio by 25 percent of its CECL transitional
amount during the third year of the transition period.
(2) For purposes of the election described
in paragraph (a)(1) of this section, an advanced approaches or Category
III Board-regulated institution must make the following additional
adjustments to its calculation of its applicable regulatory capital
ratios:
(i) Increase
total leverage exposure for purposes of the supplementary leverage
ratio by 75 percent of its CECL transitional amount during the first
year of the transition period, increase total leverage exposure for
purposes of the supplementary leverage ratio by 50 percent of its
CECL transitional amount during the second year of the transition
period, and increase total leverage exposure for purposes of the supplementary
leverage ratio by 25 percent of its CECL transitional amount during
the third year of the transition period; and
(ii) An advanced approaches Board-regulated
institution that has completed the parallel run process and that has
received notification from the Board pursuant to section 217.121(d)
must decrease amounts of eligible credit reserves by 75 percent of
its eligible credit reserves transitional amount during the first
year of the transition period, decrease amounts of eligible credit
reserves by 50 percent of its eligible credit reserves transitional
amount during the second year of the transition provision, and decrease
amounts of eligible credit reserves by 25 percent of its eligible
credit reserves transitional amount during the third year of the transition
period.
(d) 2020 CECL transition provision. Notwithstanding paragraph (a)
of this section, a Board-regulated institution that adopts CECL for
accounting purposes under GAAP as of the first day of a fiscal year
that begins during the 2020 calendar year may elect to use the transitional
amounts and modified transitional amounts in paragraph (d)(1) of this
section with the 2020 CECL transition provision calculation in paragraph
(d)(2) of this section to adjust its calculation of regulatory capital
ratios during each quarter of the transition period in which a Board-regulated
institution uses CECL for purposes of its Call Report or FR Y-9C.
A Board-regulated institution may use the transition provision in
this paragraph (d) if it has a positive modified CECL transitional
amount during any quarter ending in 2020, and makes the election in
the Call Report or FR Y-9C filed for the same quarter. A Board-regulated
institution that does not calculate a positive modified CECL transitional
amount in any quarter is not required to apply the adjustments in
its calculation of regulatory capital ratios in paragraph (d)(2) of
this section in that quarter.
(1) Definitions. For purposes of the
2020 CECL transition provision calculation in paragraph (d)(2) of
this section, the following definitions apply:
(i) Modified CECL transitional amount means:
(A) During the
first two years of the transition period, the difference between AACL
as reported in the most recent Call Report or FR Y-9C, and the AACL
as of the beginning of the fiscal year in which the Board-regulated
institution adopts CECL, multiplied by 0.25, plus the CECL transitional
amount; and
(B) During the last three
years of the transition period, the difference between AACL as reported
in the Call Report or Y-9C at the end of the second year of the transition
period and the AACL as of the beginning of the fiscal year in which
the Board-regulated institution adopts CECL, multiplied by 0.25, plus
the CECL transitional amount.
(ii) Modified AACL transitional amount means:
(A) During the
first two years of the transition period, the difference between AACL
as reported in the most recent Call Report or FR Y-9C, and the AACL
as of the beginning of the fiscal year in which the Board-regulated
institution adopts CECL, multiplied by 0.25, plus the AACL transitional
amount; and
(B) During the last three
years of the transition period, the difference between AACL as reported
in the Call Report or FR Y-9C at the end of the second year of the
transition period and the AACL as of the beginning of the fiscal year
in which the Board-regulated institution adopts CECL, multiplied by
0.25, plus the AACL transitional amount.
(2) Calculation
of 2020 CECL transition provision.
(i) A Board-regulated institution that
has elected the 2020 CECL transition provision described in this paragraph
(d) may make the following adjustments in its calculation of regulatory
capital ratios:
(A) Increase
retained earnings by 100 percent of its modified CECL transitional
amount during the first year of the transition period, increase retained earnings
by 100 percent of its modified CECL transitional amount during the
second year of the transition period, increase retained earnings by
75 percent of its modified CECL transitional amount during the third
year of the transition period, increase retained earnings by 50 percent
of its modified CECL transitional amount during the fourth year of
the transition period, and increase retained earnings by 25 percent
of its modified CECL transitional amount during the fifth year of
the transition period;
(B) Decrease
amounts of DTAs arising from temporary differences by 100 percent
of its DTA transitional amount during the first year of the transition
period, decrease amounts of DTAs arising from temporary differences
by 100 percent of its DTA transitional amount during the second year
of the transition period, decrease amounts of DTAs arising from temporary
differences by 75 percent of its DTA transitional amount during the
third year of the transition period, decrease amounts of DTAs arising
from temporary differences by 50 percent of its DTA transitional amount
during the fourth year of the transition period, and decrease amounts
of DTAs arising from temporary differences by 25 percent of its DTA
transitional amount during the fifth year of the transition period;
(C) Decrease amounts of AACL by 100 percent
of its modified AACL transitional amount during the first year of
the transition period, decrease amounts of AACL by 100 percent of
its modified AACL transitional amount during the second year of the
transition period, decrease amounts of AACL by 75 percent of its modified
AACL transitional amount during the third year of the transition period,
decrease amounts of AACL by 50 percent of its AACL transitional amount
during the fourth year of the transition period, and decrease amounts
of AACL by 25 percent of its AACL transitional amount during the fifth
year of the transition period; and
(D) Increase average total consolidated assets as reported on the
Call Report or FR Y-9C for purposes of the leverage ratio by 100 percent
of its modified CECL transitional amount during the first year of
the transition period, increase average total consolidated assets
as reported on the Call Report or FR Y-9C for purposes of the leverage
ratio by 100 percent of its modified CECL transitional amount during
the second year of the transition period, increase average total consolidated
assets as reported on the Call Report or FR Y-9C for purposes of the
leverage ratio by 75 percent of its modified CECL transitional amount
during the third year of the transition period, increase average total
consolidated assets as reported on the Call Report or FR Y-9C for
purposes of the leverage ratio by 50 percent of its modified CECL
transitional amount during the fourth year of the transition period,
and increase average total consolidated assets as reported on the
Call Report or FR Y-9C for purposes of the leverage ratio by 25 percent
of its modified CECL transitional amount during the fifth year of
the transition period.
(ii) An advanced approaches or Category
III Board-regulated institution that has elected the 2020 CECL transition
provision described in this paragraph (d) may make the following additional
adjustments to its calculation of its applicable regulatory capital
ratios:
(A) Increase
total leverage exposure for purposes of the supplementary leverage
ratio by 100 percent of its modified CECL transitional amount during
the first year of the transition period, increase total leverage exposure
for purposes of the supplementary leverage ratio by 100 percent of
its modified CECL transitional amount during the second year of the
transition period, increase total leverage exposure for
purposes of the supplementary leverage ratio by 75 percent of its
modified CECL transitional amount during the third year of the transition
period, increase total leverage exposure for purposes of the supplementary
leverage ratio by 50 percent of its modified CECL transitional amount
during the fourth year of the transition period, and increase total
leverage exposure for purposes of the supplementary leverage ratio
by 25 percent of its modified CECL transitional amount during the
fifth year of the transition period; and
(B) An advanced approaches Board-regulated institution that has completed
the parallel run process and that has received notification from the
Board pursuant to section 217.121(d) must decrease amounts of eligible
credit reserves by 100 percent of its eligible credit reserves transitional
amount during the first year of the transition period, decrease amounts
of eligible credit reserves by 100 percent of its eligible credit
reserves transitional amount during the second year of the transition
period, decrease amounts of eligible credit reserves by 75 percent
of its eligible credit reserves transitional amount during the third
year of the transition period, decrease amounts of eligible credit
reserves by 50 percent of its eligible credit reserves transitional
amount during the fourth year of the transition period, and decrease
amounts of eligible credit reserves by 25 percent of its eligible
credit reserves transitional amount during the fifth year of the transition
period.
(e) Eligible credit reserves shortfall. An
advanced approaches Board-regulated institution that has completed
the parallel run process and that has received notification from the
Board pursuant to section 217.121(d), whose amount of expected credit
loss exceeded its eligible credit reserves immediately prior to the
adoption of CECL, and that has an increase in common equity tier 1
capital as of the beginning of the fiscal year in which it adopts
CECL after including the first year portion of the CECL transitional
amount (or modified CECL transitional amount) must decrease its CECL
transitional amount used in paragraph (c) of this section (or modified
CECL transitional amount used in paragraph (d) of this section) by
the full amount of its DTA transitional amount.
(f) Business combinations. Notwithstanding
any other requirement in this section, for purposes of this paragraph
(f), in the event of a business combination involving a Board-regulated
institution where one or both Board-regulated institutions have elected
the treatment described in this section:
(1) If the acquirer Board-regulated
institution (as determined under GAAP) elected the treatment described
in this section, the acquirer Board-regulated institution must continue
to use the transitional amounts (unaffected by the business combination)
that it calculated as of the date that it adopted CECL through the
end of its transition period.
(2)
If the acquired company (as determined under GAAP) elected the treatment
described in this section, any transitional amount of the acquired
company does not transfer to the resulting Board-regulated institution.
