Implementation of the Current Expected Credit Losses Methodology for Allowances, Related Adjustments to the Tier 1/Tier 2 Capital Rule, and Conforming Amendments
Final rule.
CFR Part: "12 CFR Parts 611, 615, 620, 621, 628, and 630"
RIN Number: "RIN 3052-AD36"
Citation: "87 FR 27483"
Page Number: "27483"
"Rules and Regulations"
Agency: "
SUMMARY: The
DATES: The final rule is effective on
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Table of Contents
I. Introduction
A. Objectives of the Final Rule
B. Background
C. Overview of Changes to
D.
II. Summary of the Proposal
A. Proposed Revisions to the Capital Rules To Reflect the Change in
B. Summary of Comments Received on the Proposal
III. Final Rule
A. Revisions to the Capital Rules To Reflect the Change in
1. Introduction of Adjusted Allowances for Credit Losses as a Newly Defined Term
2. Definition of Carrying Value
i.
ii. Purchased Credit Deteriorated Assets
B. CECL Transition Provision
C. "Safe Harbor" Deemed Prior Approval To Make Cash Distributions
D. Disclosures and Regulatory Reporting
E. Conforming Changes to Other FCA Regulations
1. Final Rule Change for Vintage Year Disclosure
2. Conforming Changes Adopted as Proposed
F. Effective Date
G. Supervisory Guidance on the ACL
IV. Regulatory Analysis
A. Regulatory Flexibility Act
B. Congressional Review Act
I. Introduction
A. Objectives of the Final Rule FCA's objectives in adopting this rule are to:
* Ensure the
* Ensure conforming amendments to other regulations accurately reference credit losses.
B. Background
In 1916,
FOOTNOTE 1 The
FOOTNOTE 2
FOOTNOTE 3 12 U.S.C. 2001-2279cc. The Act is available at www.fca.gov under "Laws and regulations" and "Statutes." END FOOTNOTE
On
FOOTNOTE 4 See 84 FR 49684. Section 621.3 requires System institutions to prepare financial statements in accordance with
FOOTNOTE 5
ASU 2016-13 introduces CECL, which replaces the incurred loss methodology for financial assets measured at amortized cost. This update is discussed in more detail in the next section, Overview of Changes to
FOOTNOTE 6 The FBRAs are the
FOOTNOTE 7 See FBRA's final CECL rule at 84 FR 4222 (
Unlike the CECL rule adopted by the FBRAs,
As part of efforts to address the disruption of economic activity in
FOOTNOTE 8 See 85 FR 17723 (
As discussed below,
C. Overview of Changes to
In
FOOTNOTE 9 ASU 2016-13 covers measurement of credit losses on financial instruments and includes three subtopics within Topic 326: (i) Subtopic 326-10 Financial Instruments--Credit Losses--Overall; (ii) Subtopic 326-20: Financial Instruments--Credit Losses--Measured at Amortized Cost; and (iii) Subtopic 326-30: Financial Instruments--Credit Losses--
* Introduces CECL, which replaces the incurred loss methodology for financial assets measured at amortized cost;
* Introduces the term purchased credit deteriorated (PCD) assets, which replaces the term purchased credit impaired (PCI) assets;
* Modifies the treatment of credit losses on available-for-sale (AFS) debt securities; and
* Requires certain disclosures of credit quality indicators by year of origination (or vintage).
CECL differs from the incurred loss methodology in several key respects. CECL requires System institutions 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 System institutions 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. Estimating expected credit losses over the life of an asset under CECL, including consideration of reasonable and supportable forecasts, results in earlier recognition of credit losses than under the existing incurred loss methodology.
In addition, CECL replaces multiple impairment approaches in existing
FOOTNOTE 10 "Other extensions of credit" includes trade and reinsurance receivables, and receivables that relate to repurchase agreements and securities lending agreements. "Off-balance sheet credit exposures" includes off-balance sheet credit exposures not accounted for as insurance, such as loan commitments, standby letters of credit, and financial guarantees. Note that credit losses for off-balance sheet credit exposures that are unconditionally cancellable by the issuer are not recognized under CECL. END FOOTNOTE
As mentioned above, ASU No. 2016-13 also introduces PCD assets as a replacement for PCI assets. The PCD asset definition covers a broader range of assets than the PCI asset definition. CECL requires System institutions to estimate and record credit loss allowances for a PCD asset at the time of purchase. The credit loss allowance is then added to the purchase price to determine the amortized cost basis of the asset for financial reporting purposes. Post-acquisition increases in credit loss allowances on PCD assets will be established through a charge to earnings. This is different from the current treatment of PCI assets, for which System institutions are not permitted to estimate and recognize credit loss allowances at the time of purchase. Rather, in general, credit loss allowances for PCI assets are estimated after the purchase only if there is deterioration in the expected cash flows from the assets. /11/
FOOTNOTE 11 The System currently holds limited PCI assets, which have generally been acquired through business combinations.
ASU No. 2016-13 also introduces new requirements for AFS debt securities. The new accounting standard requires a System institution to recognize credit losses on individual AFS debt securities through credit loss allowances, rather than through direct write-downs, as is currently required under
Upon adoption of CECL, a System institution will record a one-time adjustment to its credit loss allowance as of the beginning of its fiscal year of adoption equal to the difference, if any, between the amount of credit loss allowance required under the incurred loss methodology and the amount of credit loss allowance required under CECL. Except for PCD assets, the adjustment to credit loss allowance would be recognized with offsetting entries to deferred tax assets (DTAs), if appropriate, and to the fiscal year's beginning retained earnings.
The effective date of ASU No. 2016-13 varies for different financial institutions. The original effective date for public business entities (PBEs) that are not
FOOTNOTE 12 A PBE that is not an
FOOTNOTE 13 See FASB ASU 2019-10 Financial Instruments--Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates, issued in
FOOTNOTE 14 If FASB were to amend the effective date again, System implementation may similarly be delayed. END FOOTNOTE
D.
Changes necessitated by CECL to a System institution's retained earnings, DTAs, and allowances will affect the institution's regulatory capital ratios. /15/ Specifically, retained earnings are a key component of a System institution's common equity tier 1 (CET1) capital. /16/ An increase in a System institution's allowances, including those estimated under CECL, generally will reduce the institution's earnings or retained earnings, and therefore its CET1 capital. /17/
FOOTNOTE 15 These capital ratios are specified in
FOOTNOTE 16
FOOTNOTE 17 However, as discussed above, allowances recognized on PCD assets upon adoption of CECL and upon later purchases of PCD assets generally would not reduce the System institution's earnings, retained earnings, or CET1 capital. END FOOTNOTE
Depending on the nature of the difference, DTAs arising from temporary differences (temporary difference DTAs) are included in a System's institution's risk-weighted assets or are deducted from CET1 capital. /18/ Increases in allowances generally give rise to increases in temporary difference DTAs that will partially offset the reduction in earnings or retained earnings. /19/ Under SEC 628.20(d)(3), the ALL is included in a System institution's tier 2 capital up to 1.25 percent of its standardized total risk-weighted assets (as defined in
FOOTNOTE 18 DTAs arising from temporary differences in relation to net operating loss carrybacks are risk-weighted at 100 percent under
FOOTNOTE 19 See Accounting Standards Codification Topic 740, "Income Taxes." END FOOTNOTE
FOOTNOTE 20 Under SEC 628.2, any amount of ALL greater than the 1.25 percent limit is deducted from standardized total risk-weighted assets. END FOOTNOTE
II. Summary of the Proposal
A. Proposed Revisions to the Capital Rules To Reflect the Change in
To address the forthcoming implementation of changes to
In particular,
FOOTNOTE 21 This exclusion of credit loss allowances on PCD assets and AFS debt securities is what differentiates AACL from the term allowance for credit losses (ACL), which is used by the FASB in ASU 2016-13 and which applies to both financial assets and AFS debt securities. Consistent with the proposal and as described in the following sections, the AACL definition includes only those allowances that have been charged against earnings or retained earnings. END FOOTNOTE
FOOTNOTE 22 See existing
FOOTNOTE 23 Section 628.63 requires System banks to disclose items such as capital structure, capital adequacy, credit risk, and credit risk mitigation. END FOOTNOTE
B. Summary of Comments Received on the Proposal
FOOTNOTE 24 System Workgroups Letter dated
FOOTNOTE 25 CoBank Letter dated
FOOTNOTE 26 Northwest Letter dated
FOOTNOTE 27 Capital Letter dated
All commenters supported
All commenters asked
All commenters believe
III. Final Rule
As discussed above,
A. Revisions to the Capital Rules To Reflect the Change in
1. Introduction of Adjusted Allowances for Credit Losses as a Newly Defined Term
All commenters supported the new defined term AACL and the continuation of the existing limit on the inclusion of the allowance in tier 2 capital.
CECL allowances cover a broader range of financial assets than the ALL under the incurred loss methodology. Under
As the FBRAs have said they are doing for the banking organizations that they regulate,
2. Definition of Carrying Value
i.
Current accounting standards require a System institution to make an individual assessment of each of its AFS debt securities and take a direct write-down for credit losses when such a security is other-than-temporarily impaired. The amount of the write-down is charged against earnings, which reduces CET1 capital and results in a reduction in the same amount to the carrying value of the AFS debt security. ASU 2016-13 revises the accounting for credit impairment of AFS debt securities by requiring System institutions to determine whether a decline in fair value below an AFS debt security's amortized cost resulted from a credit loss, and to record any such credit impairment through earnings with a corresponding allowance.
Similar to the current regulatory treatment of credit-related losses for other-than-temporary impairment, under the final rule all credit losses recognized on AFS debt securities will correspondingly affect CET1 capital and reduce the carrying value of the AFS debt security. Since the carrying value of an AFS debt security is its fair value, which would reflect any credit impairment, credit loss allowances for AFS debt securities required under the new accounting standard are not eligible for inclusion in a System institution's tier 2 capital.
ii. Purchased Credit Deteriorated Assets
The final rule maintains the requirement that valuation allowances be fully charged against earnings in order to be eligible for inclusion in tier 2 capital. The final rule, however, excludes PCD allowances from being included in tier 2 capital; rather, a System institution will calculate the carrying value of PCD assets net of allowances.
Under the new accounting standard, PCD assets are acquired individual financial assets (or acquired groups of financial assets with shared risk characteristics) that, as of the date of acquisition and as determined by an acquirer's assessment, have experienced a more-than-insignificant deterioration in credit quality since origination. The new accounting standard will require System institutions to estimate expected credit losses that are embedded in the purchase price of a PCD asset and recognize these amounts as an allowance as of the date of acquisition. As such, the initial allowance amount for a PCD asset recorded on a System institution's balance sheet will not be established through a charge to earnings. Including allowances in tier 2 capital that have not been charged against earnings would diminish the quality of regulatory capital. Post-acquisition increases in allowances for PCD assets will be established through a charge against earnings.
Accordingly, the final regulation provides that valuation allowances charged to retained earnings, in accordance with
Consistent with
FOOTNOTE 28 84 FR 49684, 49687 (
B. CECL Transition Provision
Unlike the FBRAs' final CECL rule,
FOOTNOTE 29 CECL requires consideration of current and future expected economic conditions to estimate allowances. To an extent, these conditions will not be known until closer to a System institution's CECL adoption date. END FOOTNOTE
All commenters asked
FOOTNOTE 30 In response to a specific question from
FOOTNOTE 31 System Workgroups Letter and Northwest Letter. END FOOTNOTE
FOOTNOTE 32 System Workgroups Letter and Capital Letter. END FOOTNOTE
FOOTNOTE 33 No commenters provided analysis to support their position. In the proposed rule,
FOOTNOTE 34 For the same reasons,
The first reason a transition period is not necessary is because even without one,
FOOTNOTE 35 While each System bank has different strategies and asset compositions, in general, the direct note to associations and investments comprise a majority of each banks' assets. Given these assets held at System banks (and their anticipated allowance levels under CECL),
FOOTNOTE 36 As noted above,
Contrary to the commenters' assertions,
FOOTNOTE 37 See Call Report Schedule RC Balance Sheet. END FOOTNOTE
FOOTNOTE 38
FOOTNOTE 39
Based on these reviews, unless existing and future expected economic conditions significantly deteriorate after publication of this rule and before the
The second reason a transition period is not necessary is that
FOOTNOTE 40 As noted in
In adopting the tier 1/tier 2 capital rule in 2016,
FOOTNOTE 41 As an example, the
FOOTNOTE 42
In general, banking organizations regulated by the FBRAs may have a larger day-one impact from adopting CECL and a phase-in may be more appropriate to ensure their regulatory capital compliance. The lending operations of many of these banking organizations--including unsecured lending such as credit cards--have historically caused banking organizations to experience higher credit losses (as a percentage of loans) than System institutions. In contrast to many banking organizations, the System lends primarily to agriculture and other eligible borrowers in rural areas. Approximately 50 percent of the System's combined loan portfolio is in real estate mortgage and rural residential real estate loans. These real estate loans are generally long-term and well-secured, and they are generally expected to have lower credit losses than commercial real estate loans.
The final reason an optional transition period is not needed is that it would lead to unnecessary complexity and operational burden. An optional transition period would require changes to existing Call Report schedules that would require institutions to change existing reporting processes each year of the transition period. For example, new, more complex calculations would be necessary for each year of the transition period (based on the percentage of the transition amount allowed for the year) for reporting items such as retained earnings, average assets, AACL, and other assets. The Call Report would also need to be updated to reflect new temporary line items such as the CECL transition amount. /43/
FOOTNOTE 43 See Federal Financial Institutions Examination Council Supplemental Instructions: Interim Final Rules and Notice Issued
If System institutions were not sufficiently capitalized to absorb the day-one impact of CECL,
An optional transition period could also be difficult to implement and maintain for System institutions in districts that make use of common standardized applications for computing and reporting regulatory capital. A transition period utilized by some institutions in such districts but not by others would appear to complicate supporting the common reporting platforms for those institutions. In addition, allowing an optional transition period would create a lack of comparability among System institutions' capital levels.
The commenters asked
FOOTNOTE 44 As noted above,
For these reasons,
C. "Safe Harbor" Deemed Prior Approval To Make Cash Distributions
All commenters asked
Section 628.20(f) requires System institutions to obtain prior approval from
FOOTNOTE 45 Note that amendments to the capital rule published at 86 FR 54347 (
Commenters believe
In practice, System institutions rarely make capital distributions--including paying dividends on preferred stock, making cash patronage payments, or redeeming or revolving equities--that equal net income for the current quarter and prior 3 quarters. Rather, in the last three years, System associations have reported, on average, distributing at least 40 percent of their net income in cash patronage. /46/ This means the overwhelming majority of associations have had sufficient capacity both to pay cash patronage and to build capital.
FOOTNOTE 46 See Call Report Schedule RI-D Changes in
Second, in the unlikely event CECL implementation would cause a System institution's CET1 capital to be less than the same quarter-end in the previous calendar year, that does not preclude the institution from paying patronage. An institution that wants to pay cash patronage but that cannot satisfy the "safe harbor" deemed prior approval requirements under
FOOTNOTE 47 Section 628.20(f)(2) and (3) provide that at least 30 days prior to the intended action, a System institution must submit a request for approval to
D. Disclosures and Regulatory Reporting
FOOTNOTE 48 ASU No. 2016-13 removes impairment approaches and related terminology, including replacing the term ALL with ACL. END FOOTNOTE
To reflect changes in
E. Conforming Changes to Other FCA Regulations
FOOTNOTE 49 Governing the contents of the annual report to shareholders. END FOOTNOTE
FOOTNOTE 50 Governing the contents of the annual report to investors. END FOOTNOTE
1. Final Rule Change for Vintage Year Disclosure
Existing
FOOTNOTE 51 See [Sec.]
FOOTNOTE 52 See proposed [Sec.]
All commenters noted that a vintage year disclosure of the ACL is not required by
FOOTNOTE 53 See [Sec.]
2. Conforming Changes Adopted as Proposed
The proposal made a conforming amendment to replace the key financial ratio "Allowance for loan losses-to-loans" with "Allowance for credit losses-to-loans" in the selected financial disclosure requirement for banks and associations in
FOOTNOTE 54 See 50 FR 34711, 34712 (
FOOTNOTE 55 See 51 FR 8656 (
FOOTNOTE 56 See 85 FR 66108 (
Similarly, the proposal made a conforming amendment to replace the balance sheet line item "Allowance for losses" with "Allowance for credit losses" in the selected financial disclosure requirement for banks and associations in
FOOTNOTE 57 Commenters did not request changes to similar disclosure requirements in part 630. Since the requirements are similar,
A number of existing
Most of the conforming changes to regulations within part 628 (as well as to regulations that refer to regulations within part 628), replace "ALL" with "AACL." In the capital disclosures at SEC628.63, the final rule replaces references to "probable loan losses" and "loan losses" with ACL or AACL, as applicable.
The final rule makes conforming changes in the following parts:
* Part 611--Organization
* Part 615--Funding and Fiscal Affairs, Loan Policies and Operations, and Funding Operations
* Part 620--Disclosure to Shareholders
* Part 621--Accounting and Reporting Requirements
* Part 628--Capital Adequacy of System Institutions
* Part 630--Disclosure to Investors in Systemwide and Consolidated Bank Debt Obligations of the
F. Effective Date
Under
All commenters recommended that
FOOTNOTE 58 In
G. Supervisory Guidance on the ACL
FOOTNOTE 59 Existing supervisory guidance includes: FCA Bookletter 49, Adequacy of Farm Credit System Institutions' Allowance for Loan Losses and Risk Funds,
IV. Regulatory Analysis
A. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act (5 U.S.C.
B. Congressional Review Act
Under the provisions of the Congressional Review Act (5 U.S.C.
List of Subjects
12 CFR Part 611
Agriculture, Banks, banking, Rural areas.
12 CFR Part 615
Accounting, Agriculture, Banks, banking, Government securities, Investments, Rural areas.
12 CFR Part 620
Accounting, Agriculture, Banks, banking, Reporting and recordkeeping requirements, Rural areas.
12 CFR Part 621
Accounting, Agriculture, Banks, banking, Reporting and recordkeeping requirements, Rural areas.
12 CFR Part 628
Accounting, Agriculture, Banks, banking, Capital, Government securities, Investments, Rural areas.
12 CFR Part 630
Accounting, Agriculture, Banks, banking, Organization and functions (Government agencies), Reporting and recordkeeping requirements, Rural areas.
For the reasons stated in the preamble, the
PART 611--ORGANIZATION
1. The authority citation for part 611 is revised to read as follows:
Authority:Secs. 1.2, 1.3, 1.4, 1.5, 1.12, 1.13, 2.0, 2.1, 2.2, 2.10, 2.11, 2.12, 3.0, 3.1, 3.2, 3.3, 3.7, 3.8, 3.9, 4.3A, 4.12, 4.12A, 4.15, 4.20, 4.25, 4.26, 4.27, 4.28A, 5.9, 5.17, 5.25, 7.0-7.3, 7.6-7.13, 8.5(e) of the Farm Credit Act (12 U.S.C. 2002, 2011, 2012, 2013, 2020, 2021, 2071, 2072, 2073, 2091, 2092, 2093, 2121, 2122, 2123, 2124, 2128, 2129, 2130, 2154a, 2183, 2184, 2203, 2208, 2211, 2212, 2213, 2214, 2243, 2252, 2261, 2279a-2279a-3, 2279b-2279f-1, 2279aa-5(e)); secs. 411 and 412, Pub. L. 100-233, 101 Stat. 1568, 1638, as amended by secs. 403 and 404, Pub. L. 100-399, 101 Stat. 989, 999 (12 U.S.C. 2071 note and 2202 note).
2. Amend
3. Amend
a. Removing in paragraph (e)(6)(iii) the word "loan" and adding in its place the word "credit"; and
b. Removing in paragraph (e)(10) the words "loan losses" and adding in their place the words "credit losses" wherever they appear.
4. Amend
5. Amend
6. Amend
7. Amend
PART 615--FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS, AND FUNDING OPERATIONS
8. The authority citation for part 615 is revised to read as follows:
Authority:Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4, 2.5, 2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.3A, 4.9, 4.14B, 4.25, 5.9, 5.17, 8.0, 8.3, 8.4, 8.6, 8.8, 8.10, 8.12 of the Farm Credit Act (12 U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074, 2075, 2076, 2093, 2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b, 2211, 2243, 2252, 2279aa, 2279aa-3, 2279aa-4, 2279aa-6, 2279aa-8, 2279aa-10, 2279aa-12); sec. 301(a), Pub. L. 100-233, 101 Stat. 1568, 1608, as amended by sec. 301(a), Pub. L. 103-399, 102 Stat 989, 993 (12 U.S.C. 2154 note); sec. 939A, Pub. L. 111-203, 124 Stat. 1326, 1887 (15 U.S.C. 78o-7 note).
9. Amend
a. Removing in paragraph (c)(1) the words "allowance for loan losses" and adding in their place the words "allowance for credit losses"; and
b. Removing in paragraphs (c)(2) through (4) the words "allowance for losses" and adding in their place the words "allowance for credit losses".
10. Amend
11. Amend
12. Amend
13. Amend
14. Amend
PART 620--DISCLOSURE TO SHAREHOLDEERS
15. The authority citation for part 620 is revised to read as follows:
Authority:Secs. 4.3, 4.3A, 4.19, 5.9, 5.17, 5.19 of the Farm Credit Act (12 U.S.C. 2154, 2154a, 2207, 2243, 2252, 2254); sec. 424, Pub. L. 100-233, 101 Stat. 1568, 1656 (12 U.S.C. 2252 note); sec. 514, Pub. L. 102-552, 106 Stat. 4102, 4134.
16. Amend
a. Removing in paragraph (f)(1)(i)(D) the word "losses" and adding in its place the words "credit losses";
b. Removing in paragraph (f)(1)(ii)(B) the words "loan losses" and adding in their place the words "credit losses";
c. Removing in paragraph (f)(1)(iii)(F) the words "loan losses-to-loans" and adding in their place the words "credit losses-to-loans";
d. Revising paragraph (g)(1)(iv)(B); and
e. Removing in paragraph (g)(1)(iv)(E) the word "losses" and adding in its place the word "credit losses".
The revision reads as follows:
*****
(g) * * *
(1) * * *
(iv) * * *
(B) An analysis of the allowance for credit losses that includes the ratios of the allowance for credit losses to loans and net chargeoffs to average loans, and a discussion of the adequacy of the allowance for credit losses given reasonable and supportable forecasts;
*****
PART 621--ACCOUNTING AND REPORTING REQUIREMENTS
17. The authority citation for part 621 is revised to read as follows:
Authority:Secs. 5.17, 5.19, 5.22A, 8.11 of the Farm Credit Act (12 U.S.C. 2183, 2202, 2202a, 2202d, 2252, 2257a, 2279aa-11); Pub. L. 102-552, 106 Stat. 4102, 4134.
18. Amend
19. Amend
PART 628--CAPITAL ADEQUACY OF SYSTEM INSTITUTIONS
20. The authority citation for part 628 is revised to read as follows:
Authority: Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4, 2.5, 2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.3A, 4.9, 4.14B, 4.25, 5.9, 5.17, 8.0, 8.3, 8.4, 8.6, 8.8, 8.10, 8.12 of the Farm Credit Act (12 U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074, 2075, 2076, 2093, 2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b, 2211, 2243, 2252, 2279aa, 2279aa-3, 2279aa-4, 2279aa-6, 2279aa-8, 2279aa-10, 2279aa-12); sec. 301(a), Pub. L. 100-233, 101 Stat. 1568, 1608, as amended by sec. 301(a), Pub. L. 103-399, 102 Stat 989, 993 (12 U.S.C. 1254 note); sec. 939A, Pub. L. 111-203, 124 Stat. 1326, 1887 (15 U.S.C. 78o-7 note).
21. Amend
a. Adding in alphabetical order a definition for "Adjusted allowances for credit loss (AACL)";
b. Removing the definition of "Allowances for loan losses (ALL)"; and
c. Adding a sentence at the end of the definition of "Carrying value";
d. Revising paragraph (2) of the definition of "Standardized total risk-weighted assets".
The additions and revision reads as follows:
*****
Adjusted allowances for credit losses (AACL) means valuation allowances that have been established through a charge against earnings or retained earnings for expected credit losses on financial assets measured at amortized cost and a lessor's net investment in leases that have been established to reduce the amortized cost basis of the assets to amounts expected to be collected as determined in accordance with GAAP. For purposes of this part, adjusted allowances for credit losses includes allowances for expected credit losses on off-balance sheet credit exposures not accounted for as insurance as determined in accordance with GAAP. Adjusted allowances for credit losses excludes allowances created that reflect credit losses on purchased credit deteriorated assets and available-for-sale debt securities.
*****
Carrying value * * * For all assets other than available-for-sale debt securities or purchased credit deteriorated assets, the carrying value is not reduced by any associated credit loss allowance that is determined in accordance with GAAP.
*****
Standardized total risk-weighted assets * * *
(2) Any amount of the System institution's adjusted allowance for credit losses that is not included in tier 2 capital.
*****
22. Amend
23. Amend
24. Amend
*****
(c) * * *
Table 5 to [Sec.] 628.63 fn1 -Credit Risk: General Disclosures
Qualitative Disclosures (a) * * *
(5) Description of the methodology that the System bank uses to estimate its adjusted allowance for
credit losses, including statistical methods used where applicable;
* * * * * * *
(e) * * *
(5) The balance in the adjusted allowance for credit losses at the end of each period according to
GAAP; and
* * * * * * *
(g) Reconciliation of changes in adjusted allowance for credit losses. fn6
* * * * * * *
fn1 This Table 5 does not cover equity exposures, which should be reported in Table 9 of this section.
* * * * * * *
fn6 The reconciliation should include the following: A description of the allowance; the opening balance of the allowance; charge-offs taken against the allowance during the period; amounts provided (or reversed) for estimated credit losses during the period; any other adjustments (for example, exchange rate differences, business combinations, acquisitions and disposals of subsidiaries), including transfers between allowances; and the closing balance of the allowance. Charge-offs and recoveries that have been recorded directly to the income statement should be disclosed separately.
*****
PART 630--DISCLOSURE TO INVESTORS IN SYSTEMWIDE AND CONSOLIDATED BANK DEBT OBLIGATIONS OF THE
25. The authority citation for part 630 is revised to read as follows:
Authority:Secs. 4.2, 4.9, 5.9, 5.17, 5.19 of the Farm Credit Act (12 U.S.C. 2153, 2160, 2243, 2252, 2254); sec. 424, Pub. L. 100-233, 101 Stat. 1568, 1656 (12 U.S.C. 2252 note); sec. 514, Pub. L. 102-552, 106 Stat. 4102, 4134.
26. Amend
a. Removing in paragraph (f)(1)(ii) the word "losses" and adding in its place the words "credit losses";
b. Removing in paragraphs (f)(2)(iii) and (f)(3)(v) the words "loan losses" and adding in their place the words "credit losses"; and
c. Revising paragraph (g)(1)(ii)(B).
The revision reads as follows:
*****
(g) * * *
(1) * * *
(ii) * * *
(B) An analysis of the allowance for credit losses to loans and net chargeoffs to average loans and a discussion of the adequacy of the allowance for credit losses given reasonable and supportable forecasts.
*****
27. Revise appendix A to part 630 to read as follows:
Appendix A to Part 630--Supplemental Information Disclosure Guidelines
Supplemental information required by [Sec.]
Table A-Supplemental Balance Sheet Information
Banks fn1 Associations fn2 Financial Eliminations Combined without Insurance fund and Combined
assistance related combination with insurance
corporation insurance fund fn3 entries fund
Cash and investments
Net loans
Restricted assets
Other Assets
Total assets
Total liabilities
Protected
borrower capital fn4
Restricted capital
Capital stock and
surplus
Total liabilities,
protected borrower
capital, and capital
stock and surplus
fn1 Provided combined financial data of all FCS banks, including any consolidated subsidiaries of the banks.
fn2 Provide association-only combined financial data of all FCS associations.
fn3 Provide the combined financial data of all columns on the left.
fn4 Any item that is no longer applicable, e.g., protected borrower stock, may be omitted.
Table B-Supplemental Income Statement Information
Banks fn1 Associations fn2 Financial Eliminations Combined without Insurance fund and Combined with insurance
assistance insurance related combination fund
corporation fund entries
fn3
Net interest income
Provision for credit
losses
Other income
Other expenses
Net Income
fn1 Provide combined financial data of all FCS banks, including any consolidated subsidiaries of the banks.
fn2 Provide association-only combined financial data of all FCS associations.
fn3 Provide the combined financial data of all columns on the left.
Dated:
Secretary, Farm Credit Administration Board.
[FR Doc. 2022-08832 Filed 5-6-22;
BILLING CODE 6705-01-P
Medicare Program; Contract Year 2023 Policy and Technical Changes to the Medicare Advantage and Medicare Prescription Drug Benefit Programs; Policy and Regulatory Revisions in Response to the COVID-19 Public Health Emergency; Additional Policy and Regulatory Revisions in Response to the COVID-19 Public Health Emergency
Transform Vehicle Claim Assessments and Estimates with Bdeo’s New Guidewire Marketplace App
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