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
Notice of proposed rulemaking.
CFR Part: "12 CFR Parts 1, 3, 5, 23, 24, 32, 34, and 46"
RIN Number: "RIN 1557-AE32"
Citation: "83 FR 22312"
Document Number: "RIN 3064-AE74"
Page Number: "22312"
"Proposed Rules"
SUMMARY:
EFFECTIVE DATE: Comments must be received by
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Table of Contents
I. Background
A. Overview of Changes to
B.
II. Description of the Proposed Rule
A. Proposed Revisions to the Capital Rules To Reflect the Change in
1. Introduction of Allowance for Credit Losses as a Newly Defined Term
2. Definition of Carrying Value
i.
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.
I. Background
A. Overview of Changes to
In
FOOTNOTE 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--
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
FOOTNOTE 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
FOOTNOTE 3 12 CFR part 3 (OCC); 12 CFR part 217 (Board); 12 CFR part 324 (FDIC). END FOOTNOTE
FOOTNOTE 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
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 methodology, results in earlier recognition of credit losses.
In addition, CECL replaces multiple impairment approaches in existing
FOOTNOTE 5 "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. The agencies note that credit losses for off-balance sheet credit exposures that are unconditionally cancellable by the issuer are not recognized under CECL. END FOOTNOTE
ASU No. 2016-13 also introduces new requirements for AFS debt securities. The new accounting standard requires that a banking organization 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 banking organization will record a one-time adjustment to its credit loss allowances as of the beginning of its fiscal year of adoption equal to the difference, if any, between the amount of credit loss allowances required under the incurred loss methodology and the amount of credit loss allowances required under CECL. Except for PCD assets, the adjustment to credit loss allowances 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 banking organizations. For banking organizations that are
FOOTNOTE 6 An SEC filer is an entity (e.g., a bank holding company or savings and loan holding company) that is required to file its financial statements with the
FOOTNOTE 7 A public business entity (PBE) that is not an
CECL Effective Dates U.S. GAAP effective date Regulatory report effective date * PBEs that are SEC Fiscal years beginning after 3/31/2020. Filers 12/15/2019, including interim periods within those fiscal years Other PBEs Fiscal years beginning after 3/31/2021. (Non-SEC Filers) 12/15/2020, including interim periods within those fiscal years Non-PBEs Fiscal years beginning after 12/31/2021. 12/15/2020, and interim periods for fiscal years beginning after 12/15/2021 Early Application Early application permitted for fiscal 3/31 of year of years beginning after 12/15/2018, effective date of including interim periods within those early application fiscal years of ASU 2016-13. * For institutions with calendar year-ends.
B.
Changes necessitated by CECL to a banking organization's retained earnings, DTAs, and allowances will affect its regulatory capital ratios. /8/ Specifically, retained earnings are a key component of a banking organization's common equity tier 1 (CET1) capital. An increase in a banking organization's allowances, including those estimated under CECL, generally will reduce the banking organization's earnings or retained earnings, and therefore its CET1 capital. /9/ DTAs arising from temporary differences (temporary difference DTAs) must be included in a banking organization's risk-weighted assets or deducted from CET1 capital if they exceed certain thresholds. Increases in allowances generally give rise to increases in temporary difference DTAs that will partially offset the reduction in earnings or retained earnings. /10/ Under the standardized approach of the capital rules, ALLL is included in a banking organization's tier 2 capital up to 1.25 percent of its standardized total risk-weighted assets (excluding its standardized market risk-weighted assets, if applicable). /11/ An advanced approaches banking organization /12/ that has completed the parallel run process /13/ includes in its advanced-approaches-adjusted total capital any eligible credit reserves that exceed the banking organization's total expected credit losses, as defined in the capital rules, to the extent that the excess reserve amount does not exceed 0.6 percent of the banking organization's credit risk-weighted assets. /14/
FOOTNOTE 8 12 CFR 3.20 (OCC); 12 CFR 217.20 (Board); 12 CFR 324.20 (FDIC). END FOOTNOTE
FOOTNOTE 9 However, allowances recognized on PCD assets upon adoption of CECL and upon later purchases of PCD assets generally would not reduce the banking organization's earnings, retained earnings, or CET1 capital. END FOOTNOTE
FOOTNOTE 10 Deferred tax assets are a result of deductible temporary differences and carryforwards which result in a decrease in taxes payable in future years. END FOOTNOTE
FOOTNOTE 11 Any amount of ALLL greater than the 1.25 percent limit is deducted from standardized total risk-weighted assets. END FOOTNOTE
FOOTNOTE 12 A banking organization is an advanced approaches banking organization if it has consolidated assets of at least
FOOTNOTE 13 An advanced approaches banking organization is considered to have completed the parallel run process once it has completed the advanced approaches qualification process and received notification from its primary federal regulator pursuant to section 121(d) of subpart E of the capital rules. See 12 CFR 3.121(d) (OCC); 12 CFR 217.121(d) (Board); 12 CFR 324.121(d) (FDIC). END FOOTNOTE
FOOTNOTE 14 12 CFR 3.10(c)(3)(ii) (OCC); 12 CFR 217.10(c)(3)(ii) (Board); and 12 CFR 324.10(c)(3)(ii) (FDIC). END FOOTNOTE
II. Description of the Proposed Rule
To address the forthcoming implementation of changes to
FOOTNOTE 15 Note that under section 37 of the Federal Deposit Insurance Act, the accounting principles applicable to reports or statements required to be filed with the agencies by all insured depository institutions must be uniform and consistent with GAAP. See 12 U.S.C. 1831n(a)(2)(A). Consistency in reporting under the statute would be addressed by the agencies' CECL revisions to the Call Report pursuant to the Paperwork Reduction Act. END FOOTNOTE
Further, the agencies are proposing to revise the capital rules, as applicable to an advanced approaches banking organization that has adopted CECL, and that has completed the parallel run process, to align the definition of eligible credit reserves with the definition of ACL in this proposal. For such a banking organization, the proposal would retain the current limit for including eligible credit reserves in tier 2 capital.
The proposal also would provide a separate capital treatment for allowances associated with AFS debt securities and PCD assets that would apply to all banking organizations upon adoption of ASU 2016-13.
In addition, the agencies are proposing to provide banking organizations the option to phase in the day-one adverse regulatory capital effects of CECL adoption over a three-year period (CECL transition provision). The CECL transition provision is intended to address banking organizations' challenges in capital planning for CECL implementation, including the uncertainty of economic conditions at the time a banking organization adopts CECL.
The proposed rule also would revise regulatory disclosure requirements that would apply to certain banking organizations following their adoption of CECL. /16/ Revisions to the agencies' regulatory reports will be proposed in a separate notice. Finally, the proposed rule would make conforming amendments to the agencies' other regulations that refer to credit loss allowances to reflect the implementation of ASU No. 2016-13.
FOOTNOTE 16 For certain banking organizations, sections 63 and 173 of the capital rules require disclosure of items such as capital structure, capital adequacy, credit risk, and credit risk mitigation. END FOOTNOTE
A. Proposed Revisions to the Capital Rules To Reflect the Change in
1. Introduction of Allowances for Credit Losses as a Newly Defined Term
The agencies are proposing to revise the capital rules to reflect the revised accounting standard for credit losses under
CECL allowances cover a broader range of financial assets than ALLL under the incurred loss methodology. Under the capital rules, ALLL includes valuation allowances that have been established through a charge against earnings to cover estimated credit losses on loans or other extensions of credit as determined in accordance with
Question 1: The agencies request comment on whether use of the term "allowance for credit losses" within the capital rules would present operational or other challenges, or generally cause confusion for banking organizations, given other contextual uses for the term, particularly in
2. Definition of Carrying Value
The agencies are proposing to revise the regulatory definition of carrying value under the capital rules to provide that, for all assets other than AFS debt securities and PCD assets, the carrying value is not reduced by any associated credit loss allowance.
i.
Current accounting standards require a banking organization 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 against earnings, which reduces CET1 capital and also results in a reduction in the same amount of the carrying value of the AFS debt security. ASU No. 2016-13 revises the accounting for credit impairment of AFS debt securities by requiring banking organizations 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 proposal all credit losses recognized on AFS debt securities would flow through to 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 would not be eligible for inclusion in a banking organization's tier 2 capital.
ii. Purchased Credit-Deteriorated Assets
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 a banking organization 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 banking organization's balance sheet will not be established through a charge to earnings. Post-acquisition increases in allowances for PCD assets will be established through a charge against earnings.
Including in tier 2 capital allowances that have not been charged against earnings would diminish the quality of regulatory capital. Accordingly, the agencies are proposing to maintain the requirement that valuation allowances be charged against earnings in order to be eligible for inclusion in tier 2 capital. The agencies also are clarifying that valuation allowances that are charged to retained earnings in accordance with
Question 2: The agencies are requesting comment on whether the definition of ACL is appropriate for determining the amount of allowances that may be included in a banking organization's tier 2 capital and whether the approach to AFS debt securities and PCD assets is appropriate. What, if any, alternatives with respect to the treatment of ACL, AFS debt securities, and PCD assets should the agencies consider and what are the associated advantages and disadvantages of such alternatives?
3. Additional Considerations
The agencies are not proposing to change the limit of 1.25 percent of risk-weighted assets governing the amount of ACL eligible for inclusion in tier 2 capital. The agencies intend to monitor the effects of this limit on regulatory capital and bank lending practices. This ongoing monitoring will include the review of data, including data provided by banking organizations, and will assist the agencies in determining whether a further change to the capital rules' treatment of ACL might be warranted. To the extent the agencies determine that further revisions to the capital rules are necessary, the agencies would seek comment through a separate proposal.
B. CECL Transition Provision
As discussed above, upon adopting CECL, a banking organization will record an adjustment to its credit loss allowances equal to the difference between the amount of credit loss allowances required under the incurred loss methodology and the amount of credit loss allowances required under CECL. Some banking organizations have expressed concerns about the difficulty in capital planning due to the uncertainty about the economic environment at the time of CECL adoption. This is largely because CECL requires banking organizations to consider current and future expected economic conditions to estimate allowances and these conditions will not be known until closer to a banking organization's CECL adoption date. Therefore, it is possible that despite adequate planning to prepare for the implementation of CECL, unexpected economic conditions at the time of CECL adoption could result in higher-than-anticipated increases in allowances. To address these concerns, the agencies are proposing to provide a banking organization with the option to phase in over a three-year period the day-one adverse effects of CECL on the banking organization's regulatory capital ratios.
1. Election of the Optional CECL Transition Provision
Under the proposal, a banking organization that experiences a reduction in retained earnings as of the CECL adoption date may elect to phase in the regulatory capital impact of adopting CECL over a three-year transition period (electing banking organization). An electing banking organization would be required to begin applying the CECL transition provision as of the electing banking organization's CECL adoption date. An electing banking organization would indicate in its regulatory report its election to use the CECL transition provision beginning in the quarter that it first reports its credit loss allowances as measured under CECL. /17/
FOOTNOTE 17 An insured depository institution would indicate its election to use the CECL transition provision on its Consolidated Reports of Condition and Income. A holding company would indicate its election to use the CECL transition provision on its FR Y-9C. END FOOTNOTE
A banking organization that does not elect to use the CECL transition provision in the quarter that it first reports its credit loss allowances as measured under CECL would not be permitted to make an election in subsequent reporting periods and would be required to reflect the full effect of CECL in its regulatory capital ratios as of the banking organization's CECL adoption date. For example, a banking organization that adopts CECL as of
A banking organization that is a non-PBE must adopt CECL no later than for fiscal years beginning after
Under the proposed rule, a depository institution holding company subject to the Board's capital rule and each of its subsidiary insured depository institutions would be eligible to make a CECL transition provision election independent of one another.
2. Mechanics of the CECL Transition Provision
The CECL transition provision is designed to phase in the day-one adverse impact on a banking organization's regulatory capital ratios resulting from its adoption of CECL. To calculate its transitional amounts under the CECL transition provision, an electing banking organization would compare the difference between its closing balance sheet amount for the fiscal year-end immediately prior to its adoption of CECL (pre-CECL amount) and its balance sheet amount as of the beginning of the fiscal year in which the electing banking organization adopts CECL (post-CECL amount) for the following items: Retained earnings, temporary difference DTAs, and credit loss allowances eligible for inclusion in regulatory capital. The differences determined for each of these items would constitute the transitional amounts that an electing banking organization would phase in to its regulatory capital calculations over the proposed transition period, which would be the three-year period (twelve quarters) beginning the first day of the fiscal year in which the electing banking organization adopts CECL.
Specifically, under the proposed rule, an electing banking organization's CECL transitional amount would be determined as the difference between its pre-CECL and post-CECL amounts of retained earnings (CECL transitional amount). An electing banking organization's DTA transitional amount would be determined as the difference between its pre-CECL and post-CECL amounts of temporary difference DTAs (DTA transitional amount). An electing banking organization's ACL transitional amount would be determined as the difference between its pre-CECL amount of ALLL and its post-CECL amount of ACL (ACL transitional amount).
Under the standardized approach, an electing banking organization would phase in over the transition period its CECL transitional amount, DTA transitional amount, and ACL transitional amount. The electing banking organization also would phase in over the transition period the CECL transitional amount to its average total consolidated assets for purposes of calculating the tier 1 leverage ratio. Each transitional amount would be phased in over the transition period on a straight line basis.
Thus, for regulatory capital ratio calculation purposes, an electing banking organization would phase in the CECL transitional amount by increasing its retained earnings by 75 percent of its CECL transitional amount during the first year of the transition period, by 50 percent of its CECL transitional amount during the second year of the transition period, and by 25 percent of its CECL transitional amount during the third year of the transition period. The electing banking organization would phase in the DTA transitional amount by decreasing the amount of its temporary difference DTAs by 75 percent of its DTA transitional amount during the first year of the transition period, by 50 percent of its DTA transitional amount during the second year of the transition period, and by 25 percent of its DTA transitional amount during the third year of the transition period. The banking organization would phase in the ACL transitional amount by decreasing the amount of its ACL by 75 percent of its ACL transitional amount during the first year of the transition period, by 50 percent of its ACL transitional amount during the second year of the transition period, and by 25 percent of its ACL transitional amount during the third year of the transition period. Finally, for regulatory capital ratio calculation purposes, the electing banking organization would increase the amount of its average total consolidated assets by its CECL transitional amount over the transition period on the same straight line basis (i.e., increasing average total consolidated assets by 75 percent of the CECL transitional amount during year 1, by 50 percent during year 2, and by 25 percent during year 3 of the transition period).
For example, consider a hypothetical electing banking organization that has a CECL effective date of
Table 1--Example of a CECL Transition Provision Schedule Transitional Transitional amounts applicable during each amounts year of the transition period Column A Column B Column C Column D In thousands Year 1 at 75% Year 2 at 50% Year 3 at 25% Increase$158 $118.50 $79 $39.50 retained earnings and average total consolidated assets by the CECL transitional amount Decrease 42 31.50 21 10.50 temporary difference DTAs by the DTA transitional amount Decrease ACL 200 150 100 50 by the ACL transitional amount
The result of the CECL transition provision for an electing banking organization would be to phase in the effect of the adoption of CECL in its regulatory capital ratios in a uniform manner. The phase in of the CECL transitional amount to retained earnings would mitigate the decrease in an electing banking organization's CET1 capital resulting from CECL adoption, and would increase during the transition period the level at which the capital rule's CET1 capital deduction thresholds would be triggered. The DTA transitional amount would phase in the amount of an electing banking organization's temporary difference DTAs subject to the CET1 capital deduction thresholds and the amount of temporary difference DTAs included in risk-weighted assets. The ACL transitional amount would phase in the amount of ACL that an electing banking organization may include in its tier 2 capital up to the limit of 1.25 percent of its standardized total risk-weighted assets (excluding its standardized market risk-weighted assets, if applicable). Finally, for purposes of an electing banking organization's tier 1 leverage ratio calculation, the addition of the CECL transitional amount to average total consolidated assets would offset the immediate decrease that would otherwise occur as a result of the adjustments to ACL and temporary difference DTAs resulting from the adoption of CECL.
Notwithstanding the CECL transition provision, all other aspects of the capital rules would continue to apply. Thus, all regulatory capital adjustments and deductions would continue to apply and an electing banking organization would continue to be limited in the amount of ACL that it could include in its tier 2 capital. /18/
FOOTNOTE 18 12 CFR 3.10(c)(3)(ii)(B), 12 CFR 3.20(d)(3) (OCC); 12 CFR 217.10(c)(3)(ii)(B), 12 CFR 217.20(d)(3) (Board); 12 CFR 324.10(c)(3)(ii)(B), 12 CFR 324.20(d)(3) (FDIC). END FOOTNOTE
Question 3: The agencies seek comment on other potential approaches to phasing in the day-one effects of CECL on banking organizations' regulatory capital ratios. What are the pros and cons of such alternative approaches?
3. CECL Transition Provision Time Period
As noted, the agencies are proposing a phase-in period of three years. ASU No. 2016-13 was issued in 2016 and becomes mandatory in 2020 at the earliest, which provides banking organizations with at least four years to plan for CECL implementation. While the agencies recognize that a banking organization will better understand the macroeconomic factors that may affect the size of the banking organization's one-time adjustment to CECL closer to its CECL adoption date, the agencies view a period of four years to plan for CECL, combined with the proposed three-year transition period, as a sufficient amount of time for a banking organization to adjust and adapt to any immediate adverse effects on regulatory capital ratios resulting from CECL adoption.
Question 4: The agencies seek comment on the sufficiency of the proposed three-year transition period. Would a different time period be more appropriate? If so, why?
4. Business Combinations
Under the proposal, an electing banking organization that acquires another banking organization (as determined under
Question 5: The agencies seek comment on the proposed treatment of business combinations and other potential approaches to treating business combinations within the context of the CECL transition provision. What are the pros and cons of such alternative approaches?
5. Supervisory Oversight
For purposes of determining whether an electing banking organization is in compliance with its regulatory capital requirements (including capital buffer and prompt corrective action (PCA) requirements), the agencies would use the electing banking organization's regulatory capital ratios as adjusted by the CECL transition provision. Through the supervisory process, the agencies would continue to examine banking organizations' credit loss estimates and allowance balances regardless of whether the banking organization has elected to use the CECL transition provision. In addition, the agencies may monitor electing banking organizations to ensure that such banking organizations have adequate capital at the expiration of their CECL transition provision period.
C. Additional Requirements for Advanced Approaches Banking Organizations
Under the capital rules, an advanced approaches banking organization that has completed the parallel run process includes in its advanced-approaches-adjusted total capital any amount of eligible credit reserves that exceeds its regulatory expected credit losses to the extent that the excess reserve amount does not exceed 0.6 percent of the banking organization's credit risk-weighted assets. /19/ The agencies propose to revise the definition of eligible credit reserves to align with the definition of ACL in this proposal. Under the proposal, for an advanced approaches banking organization that has adopted CECL, eligible credit reserves would mean all general allowances that have been established through a charge against earnings or retained earnings to cover expected credit losses associated with on- or off-balance sheet wholesale and retail exposures, including ACL associated with such exposures. Similar to the current definition of eligible credit reserves, the definition of eligible credit reserves applicable to banking organizations that have adopted CECL would exclude allocated transfer risk reserves established pursuant to 12 U.S.C. 3904. In addition, the revised eligible credit reserves definition would exclude allowances that reflect credit losses on PCD assets and AFS debt securities, and other specific reserves created against recognized losses. The definition of eligible credit reserves would remain unchanged for an advanced approaches banking organization that has not adopted CECL.
FOOTNOTE 19 12 CFR 3.10(c)(3)(ii) (OCC); 12 CFR 217.10(c)(3)(ii) (Board); and 12 CFR 324.10(c)(3)(ii) (FDIC). END FOOTNOTE
For purposes of the supplementary leverage ratio, which is applicable to all advanced approaches banking organizations, the proposal would maintain the current definition of total leverage exposure. Thus, total leverage exposure would continue to include, among other items, the balance sheet carrying value of an advanced approaches banking organization's on-balance sheet assets less amounts deducted from tier 1 capital.
An advanced approaches banking organization that elects to use the CECL transition provision (electing advanced approaches banking organization) would increase its 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 its 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 its 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.
In addition, an electing advanced approaches banking organization that has completed the parallel run process would calculate an additional transitional amount to be phased into its eligible credit reserves (eligible credit reserves transitional amount). The eligible credit reserves transitional amount would mean the increase in the amount of an advanced approaches banking organization's eligible credit reserves as of the beginning of the fiscal year in which the banking organization adopts CECL from the amount of that banking organization's eligible credit reserves as of the closing of the fiscal year-end immediately prior to the banking organization's adoption of CECL. An electing advanced approaches banking organization would decrease the amount of its eligible credit reserves by its eligible credit reserves transitional amount over the transition period on a straight line basis (i.e., decreasing eligible credit reserves by 75 percent during year 1, by 50 percent during year 2, and by 25 percent during year 3).
An advanced approaches banking organization that has completed the parallel run process is required to deduct from CET1 capital the amount of expected credit loss that exceeds its eligible credit reserves (ECR shortfall). Due to this requirement, an advanced approaches banking organization's CET1 capital immediately after CECL adoption may be greater than its CET1 capital immediately before CECL adoption. /20/ This is because, for such banking organizations, CECL allowances can have a dual impact on CET1 capital: A reduction in retained earnings (partially offset by DTAs) and a concurrent reduction in the CET1 ECR shortfall deduction. The agencies are concerned that the use of the CECL transition provision could provide an undue benefit to a banking organization that had an ECR shortfall prior to its adoption of CECL and could undermine an objective of the CECL transition provision to provide relief to banking organizations that experience an immediate adverse impact to regulatory capital as a result of CECL adoption. Therefore, the agencies are proposing to limit the CECL transitional amount that such an electing advanced approaches banking organization can include in retained earnings. As part of this proposal, an electing advanced approaches banking organization that (1) has completed the parallel run process, (2) has an ECR shortfall immediately prior to the adoption of CECL, and (3) would have an increase in CET1 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, must decrease its CECL transitional amount by its DTA transitional amount. /21/ The agencies believe requiring such an advanced approaches banking organization to reduce its CECL transitional amount by its DTA transitional amount would be simple to implement and thus would not be operationally burdensome. As an alternative approach, the agencies also would consider requiring an electing advanced approaches banking organization with an ECR shortfall immediately prior to the adoption of CECL to reduce its CECL transitional amount by the amount necessary to cause its CET1 capital upon adoption of CECL to not exceed CET1 capital immediately prior to adoption of CECL.
FOOTNOTE 20 See 12 CFR 3.121(d) (OCC); 12 CFR 217.121(d) (Board); and 12 CFR 324.121(d) (FDIC). END FOOTNOTE
FOOTNOTE 21 For example, if a banking organization has completed the parallel run process, has an ECR shortfall immediately prior to the adoption of CECL, would have an increase in CET1 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, and, upon the adoption of CECL, records an increase to ACL (credit) of
Question 6: The agencies are requesting comment on whether the definition of eligible credit reserves is appropriate for determining the amount of allowances that may be included in an advanced approaches banking organization's total capital. What, if any, alternatives with respect to the treatment of eligible credit reserves should the agencies consider and what are the associated advantages and disadvantages of such alternatives?
Question 7: The agencies are requesting comment on the proposed CECL transitional amount limitation for certain advanced approaches banking organizations that have an ECR shortfall. What, if any, are the associated advantages and disadvantages of the alternatives provided by the agencies?
D. Disclosures and Regulatory Reporting
Under the proposed rule, banking organizations subject to the disclosure requirements in section 63 of the capital rules would be required to update their disclosures to reflect the adoption of CECL. For example, such banking organizations would be required to disclose ACL instead of ALLL after CECL adoption.
For advanced approaches banking organizations, the agencies propose similar revisions to Tables 2, 3, and 5 in section 173 of the capital rules to reflect the adoption of CECL. In addition, the agencies are proposing revisions to those tables for electing advanced approaches banking organizations to disclose two sets of regulatory capital ratios. One set would reflect the banking organization's capital ratios with the CECL transition provision and the other set would reflect the banking organization's capital ratios on a fully phased-in basis.
In addition, to reflect changes in
E. Conforming Changes to Other Agency Regulations
1. OCC Regulations
In addition to the capital rules, seven provisions in other OCC regulations refer to ALLL, as defined in 12 CFR part 3, in calculating various statutory or regulatory limits. Specifically, ALLL is used in calculating limits on holdings of certain investment securities (12 CFR part 1); limits on ownership of bankers' bank stock (12 CFR 5.20); limits on investments in bank premises (12 CFR 5.37); limits on leasing of personal property (12 CFR 23.4); limits on certain community development investments (12 CFR 24.4); lending limits (12 CFR part 32); and, limits on improvements to other real estate owned (12 CFR part 34, subpart E).
The OCC proposes to revise the calculations used in those sections that currently reference ALLL to also reference ACL, once a banking organization has adopted the FASB standard. This proposed conforming revision will ensure that banking organizations will not experience a material decrease in any of the affected limits due to the adoption of CECL.
In addition, the OCC proposes to make conforming edits to the terminology used in the OCC's stress testing regulation at 12 CFR part 46 to incorporate the new CECL methodology.
2. Board Regulations
Certain other regulations of the Board reflect the current practice of banking organizations establishing ALLL under the incurred loss methodology to cover estimated credit losses on loans, lease financing receivables, or other extensions of credit. As discussed in this proposal, banking organizations that adopt CECL will hold ACL to cover expected credit losses on a broader array of financial assets than covered by the ALLL. As a result, the proposal would make conforming changes to those other regulations.
Specifically, the proposal would amend the definition of "capital stock and surplus" in the Board's Regulation H, 12 CFR part 208, to include the balance of a member bank's allowance for credit losses. Similarly, the proposal would incorporate "allowance for credit losses" in the definition of "capital stock and surplus" in the Board's Regulation K, 12 CFR part 211; Regulation W, 12 CFR part 223; and Regulation Y, 12 CFR part 225. A related change would be made to the definition of unimpaired capital and unimpaired surplus in the Board's Regulation O, 12 CFR part 215.
The proposal would make a similar change to the Board's Regulation K relating to the establishment of an allocated transfer risk reserve (ATRR). Specifically, the proposal would replace, for CECL adopters, all references to ALLL, in the section relating to the accounting treatment of ATRR, with ACL.
The proposal incorporates technical amendments to
Finally, the Board is proposing to amend its stress testing rules in the Board's Regulation YY, 12 CFR part 252, to address the changes made in
Table 2--Summary of Use of Provisions in 2019-2021 Stress Test Cycles Year of 2019 Stress test 2020 Stress test 2021 Stress test adoption cycle cycle cycle of ASU No. 2016-13 2019 Provision for loan Provision for credit Provision for credit and lease losses losses losses. 2020 Provision for loan Provision for credit Provision for credit and lease losses losses losses. 2021 Provision for loan Provision for loan Provision for credit and lease losses and lease losses losses.
The proposal would make a similar change to the Board's company-run stress test requirements to require a banking organization that has adopted CECL, beginning in the 2020 stress test cycle, to incorporate the effects of the maintenance of ACL when estimating the impact on pro forma regulatory capital levels and pro forma capital ratios.
Question 8: The Board seeks comment on whether requiring a banking organization that adopts CECL in 2019 not to include provisions for credit losses in the 2019 stress test cycle would create additional burden or complexity.
Question 9: The Board seeks comment on whether, apart from the approach described, additional changes should be made to its stress testing rules to address the accounting change.
3. FDIC Regulations
The proposal would also make conforming amendments to references to provisions or ALLL in the
F. Additional Requests for Comment
The agencies seek comment on all aspects of the proposal. Comments are requested about the potential advantages of the proposal in ensuring the individual safety and soundness of these banking organizations as well as on the stability of the financial system.
III. Regulatory Analyses
A. Paperwork Reduction Act
Certain provisions of the proposed rule contain "collection of information" requirements within the meaning of the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In accordance with the requirements of the PRA, the agencies may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid
Comments are invited on:
a. Whether the collections of information are necessary for the proper performance of the agencies' functions, including whether the information has practical utility;
b. The accuracy or the estimate of the burden of the information collections, including the validity of the methodology and assumptions used;
c. Ways to enhance the quality, utility, and clarity of the information to be collected;
d. Ways to minimize the burden of the information collections on respondents, including through the use of automated collection techniques or other forms of information technology; and
e. Estimates of capital or startup costs and costs of operation, maintenance, and purchase of services to provide information.
Disclosure Burden--Advanced Approaches Banking Organizations
Current Actions
Section 173 of the capital rules requires that advanced approaches banking organizations publicly disclose capital-related information as provided in a series of 13 tables. For advanced approaches banking organizations, the agencies propose revisions to Tables 2, 3, and 5 in section 173 of the capital rules to reflect the adoption of CECL. In addition, the agencies are proposing revisions to those tables for electing advanced approaches banking organizations to disclose two sets of regulatory capital ratios. One set would reflect such banking organization's capital ratios with the CECL transition provision and the other set would reflect the banking organization's capital ratios on a fully phased-in basis. This aspect of the proposed rule affects the below-listed information collections.
The changes in the disclosure requirements to Tables 2, 3, and 5 in section 173 of the capital rules would result in an increase in the average hours per response per agency of 48 hours for the initial setup burden. In addition, the changes in the disclosure requirements to Tables 2, 3, and 5 in section 173 of the capital rules would result in an increase in the average hours per response per agency of 6 hours for ongoing (quarterly) burden. /22/
FOOTNOTE 22 In an effort to provide transparency, the total cumulative burden for each agency is shown. In addition, as stated in the Notice of Proposed Rulemaking, Simplifications to the Capital Rule Pursuant to the Economic Growth and Regulatory Paperwork Reduction Act of 1996, 82 FR 49984 (
Proposed Revision, With Extension, of the Following Information Collections
OCC
Title of Information Collection: Risk-Based Capital Standards: Advanced Capital Adequacy Framework.
Frequency: Quarterly, annual.
Affected Public: Businesses or other for-profit.
Respondents: National banks, state member banks, state nonmember banks, and state and federal savings associations.
OMB control number: 1557-0318.
Estimated number of respondents: 1,365 (of which 18 are advanced approaches institutions).
Estimated average hours per response:
Minimum Capital Ratios
Recordkeeping (Ongoing)--16.
Standardized Approach
Recordkeeping (Initial setup)--122.
Recordkeeping (Ongoing)--20.
Disclosure (Initial setup)--226.25.
Disclosure (Ongoing quarterly)--131.25.
Advanced Approaches
Recordkeeping (Initial setup)--460.
Recordkeeping (Ongoing)--540.77.
Recordkeeping (Ongoing quarterly)--20.
Disclosure (Initial setup)--328.
Disclosure (Ongoing)--5.78.
Disclosure (Ongoing quarterly)--41.
Proposed revisions estimated annual burden: 432 hours.
Estimated annual burden hours: 1,136 hours initial setup, 64,945 hours for ongoing.
Board
Title of Information Collection: Recordkeeping and Disclosure Requirements Associated with Regulation Q.
Frequency: Quarterly, annual.
Affected Public: Businesses or other for-profit.
Respondents: State member banks (SMBs), bank holding companies (BHCs),
Legal authorization and confidentiality: This information collection is authorized by section 38(o) of the Federal Deposit Insurance Act (12 U.S.C. 1831o(c)), section 908 of the International Lending Supervision Act of 1983 (12 U.S.C. 3907(a)(1)), section 9(6) of the Federal Reserve Act (12 U.S.C. 324), and section 5(c) of the Bank Holding Company Act (12 U.S.C. 1844(c)). The obligation to respond to this information collection is mandatory. If a respondent considers the information to be trade secrets and/or privileged such information could be withheld from the public under the authority of the Freedom of Information Act (5 U.S.C. 552(b)(4)). Additionally, to the extent that such information may be contained in an examination report such information could also be withheld from the public (5 U.S.C. 552 (b)(8)).
Agency form number: FR Q.
OMB control number: 7100-0313.
Estimated number of respondents: 1,431 (of which 17 are advanced approaches institutions).
Estimated average hours per response:
Minimum Capital Ratios
Recordkeeping (Ongoing)--16.
Standardized Approach
Recordkeeping (Initial setup)--122.
Recordkeeping (Ongoing)--20.
Disclosure (Initial setup)--226.25.
Disclosure (Ongoing quarterly)--131.25.
Advanced Approaches
Recordkeeping (Initial setup)--460.
Recordkeeping (Ongoing)--540.77.
Recordkeeping (Ongoing quarterly)--20.
Disclosure (Initial setup)--328.
Disclosure (Ongoing)--5.78.
Disclosure (Ongoing quarterly)--41.
Disclosure (Table 13 quarterly)--5.
Risk-based Capital Surcharge for GSIBs
Recordkeeping (Ongoing)--0.5.
Proposed revisions estimated annual burden: 456 hours.
Estimated annual burden hours: 1,136 hours initial setup, 78,591 hours for ongoing.
Title of Information Collection: Regulatory Capital Rules.
Frequency: Quarterly, annual.
Affected Public: Businesses or other for-profit.
Respondents: State nonmember banks, state savings associations, and certain subsidiaries of those entities.
OMB control number: 3064-0153.
Estimated number of respondents: 3,637 (of which 2 are advanced approaches institutions).
Estimated average hours per response:
Minimum Capital Ratios
Recordkeeping (Ongoing)--16.
Standardized Approach
Recordkeeping (Initial setup)--122.
Recordkeeping (Ongoing)--20.
Disclosure (Initial setup)--226.25.
Disclosure (Ongoing quarterly)--131.25.
Advanced Approaches
Recordkeeping (Initial setup)--460.
Recordkeeping (Ongoing)--540.77.
Recordkeeping (Ongoing quarterly)--20.
Disclosure (Initial setup)--328.
Disclosure (Ongoing)--5.78.
Disclosure (Ongoing quarterly)--41.
Proposed revisions estimated annual burden: 96 hours.
Estimated annual burden hours: 1,136 hours initial setup, 133,038 hours for ongoing.
Reporting Burden--FFIEC and Board Forms
Current Actions
The agencies also plan to make changes to certain
B. Regulatory Flexibility Act
OCC: The Regulatory Flexibility Act, 5 U.S.C.
Board: The RFA requires an agency to consider whether the rules it proposes will have a significant economic impact on a substantial number of small entities. /23/ In connection with a proposed rule, the RFA requires an agency to prepare an initial regulatory flexibility analysis describing the impact of the rule on small entities or to certify that the proposed rule would not have a significant economic impact on a substantial number of small entities. An initial regulatory flexibility analysis must contain (1) a description of the reasons why action by the agency is being considered; (2) a succinct statement of the objectives of, and legal basis for, the proposed rule; (3) a description of, and, where feasible, an estimate of the number of small entities to which the proposed rule will apply; (4) a description of the projected reporting, recordkeeping, and other compliance requirements of the proposed rule, including an estimate of the classes of small entities that will be subject to the requirement and the type of professional skills necessary for preparation of the report or record; (5) an identification, to the extent practicable, of all relevant Federal rules which may duplicate, overlap with, or conflict with the proposed rule; and (6) a description of any significant alternatives to the proposed rule which accomplish its stated objectives.
FOOTNOTE 23 Under regulations issued by the
The Board has considered the potential impact of the proposed rule on small entities in accordance with the RFA. Based on its analysis and for the reasons stated below, the Board believes that this proposed rule will not have a significant economic impact on a substantial number of small entities. Nevertheless, the Board is publishing and inviting comment on this initial regulatory flexibility analysis. A final regulatory flexibility analysis will be conducted after comments received during the public comment period have been considered.
As discussed in detail above, the agencies are proposing to identify which credit loss allowances under GAAP (ASU No. 2016-13) are eligible for inclusion in regulatory capital and to provide banking organization the option to phase in, over a three-year period, the effect on regulatory capital that may result from adoption of this accounting standard (ASU No. 2016-13). The proposal also would make conforming amendments to other regulations.
The Board has authority under the International Lending Supervision Act (ILSA) /24/ and the PCA provisions of the Federal Deposit Insurance Act /25/ to establish regulatory capital requirements for the institutions it regulates. For example, ILSA directs each Federal banking agency to cause banking institutions to achieve and maintain adequate capital by establishing minimum capital requirements as well as by other means that the agency deems appropriate. /26/ The PCA provisions of the Federal Deposit Insurance Act direct each Federal banking agency to specify, for each relevant capital measure, the level at which an insured depository institution is well capitalized, adequately capitalized, undercapitalized, and significantly undercapitalized. /27/ In addition, the Board has authority to establish regulatory capital standards for bank holding companies under ILSA /28/ and the Bank Holding Company Act /29/ and for savings and loan holding companies under the Home Owners Loan Act. /30/
FOOTNOTE 24 12 U.S.C. 3901-3911. END FOOTNOTE
FOOTNOTE 25 12 U.S.C. 1831 o. END FOOTNOTE
FOOTNOTE 26 12 U.S.C. 3907(a)(1). END FOOTNOTE
FOOTNOTE 27 12 U.S.C. 1831 o (c)(2). END FOOTNOTE
FOOTNOTE 28 See 12 U.S.C. 3907. END FOOTNOTE
FOOTNOTE 29 See 12 U.S.C. 1844. END FOOTNOTE
FOOTNOTE 30 See 12 U.S.C. 1467a(g)(1). END FOOTNOTE
All banking organizations will be required to adopt ASU No. 2016-13, which will likely result in an increase in credit loss allowances. An increase in a banking organization's credit loss allowances will reduce the firm's retained earnings and therefore its CET1 capital. The proposed rule would identify those credit loss allowances under ASU No. 2016-13 that would be eligible for inclusion in regulatory capital. Further, the proposed rule would introduce a three-year transition period, which would allow a banking organization to phase in the immediate impact of adoption of ASU No. 2016-13. During the transition period, a banking organization that elects to use the phase-in would report higher capital than it otherwise would under the current capital rules.
The proposed rule also would make conforming amendments to certain of the Board's other regulations. In particular, certain other regulations of the Board include a definition of "capital stock and surplus," which reflect the current practice of banking organizations establishing ALLL to cover estimated credit losses on loans, lease financing receivables, or other extensions of credit. The proposed rule would allow banking organizations that are subject to these regulations to also include in the definition of "capital stock and surplus" those credit loss allowances under ASU No. 2016-13 that would be eligible for inclusion in regulatory capital. Most aspects of the proposed rule would apply to all state member banks, as well as generally all bank holding companies and savings and loan holding companies that are subject to the Board's capital rule. However, in virtually all cases, the Board's capital rule only applies to bank holding companies and savings and loan holding companies with greater than
The proposed rule would not impact the recordkeeping and reporting requirements to which affected small banking organizations are currently subject. The agencies anticipate updating the relevant reporting forms at a later date.
The Board does not believe that the proposed rule duplicates, overlaps, or conflicts with any other Federal rules. In light of the foregoing, the Board does not believe that the proposed rule, if adopted in final form, would have a significant economic impact on a substantial number of small entities and therefore believes that there are no significant alternatives to the proposed rule that would reduce the economic impact on small banking organizations supervised by the Board. Nonetheless, the Board seeks comment on whether the proposed rule would impose undue burdens on, or have unintended consequences for, small organizations, and whether there are ways such potential burdens or consequences could be minimized in a manner consistent with the purpose of the proposed rule. A final regulatory flexibility analysis will be conducted after consideration of comments received during the public comment period.
The RFA generally requires that, in connection with a notice of proposed rulemaking, an agency prepare and make available for public comment an initial regulatory flexibility analysis describing the impact of the proposed rule on small entities. /31/ A regulatory flexibility analysis is not required, however, if the agency certifies that the rule will not have a significant economic effect on a substantial number of small entities. The SBA has defined "small entities" to include banking organizations with total assets less than or equal to
FOOTNOTE 31 5 U.S.C.
FOOTNOTE 32 13 CFR 121.201 (as amended, effective
Description of Need and Policy Objectives
In
Upon adoption of CECL, a banking organization will record a one-time adjustment to its allowance for credit losses as of the beginning of its fiscal year of adoption equal to the difference, if any, between the amount of credit loss allowances required under the incurred loss methodology and the amount of credit loss allowances required under the CECL methodology. Changes to retained earnings, DTAs, and ALLL affect a banking organization's calculation of regulatory capital. /33/ To address changes made in
FOOTNOTE 33 12 CFR 3.20 (OCC); 12 CFR 217.20 (Board); 12 CFR 324.20 (FDIC). END FOOTNOTE
FOOTNOTE 34 Under section 37 of the Federal Deposit Insurance Act, the accounting principles applicable to reports or statements required to be filed with the agencies by all insured depository institutions must be uniform and consistent with
Description of the Proposal
A description of the proposal is presented Section II: Description of the Proposed Rule. Please refer to it for further information.
Other Federal Rules
The FDIC has not identified any likely duplication, overlap, and/or potential conflict between the proposed rule and any federal rule.
Economic Impacts on Small Entities
The proposed rule could affect all
FOOTNOTE 35 FDIC Call Report data as of
The proposal, if implemented, would benefit small institutions who adopt the proposed three-year transition schedule by allowing them to phase-in any increases in capital associated with the implementation of CECL over that time. The three year transition schedule would reduce the costs associated with potential increases in capital relative to the immediate impact of CECL adoption by allowing institutions to raise capital levels gradually, over-time. It is difficult to accurately estimate the potential benefit for small institutions with available data because it depends on the assets held by small institutions, their provision activity, future economic conditions, and the decisions of senior management, among other things.
The proposal would pose some small regulatory costs for institutions that opt to utilize the three-year transition schedule. Changes in disclosure requirements for capital rules would result in an estimated increase of 48 hours on average hours per response per agency for the initial setup burden, as well as an estimated increase of 6 hours per response per agency for ongoing (quarterly) burden. Additionally, small entities that are subsidiaries of large complex institutions may have additional regulatory costs associated with changes in disclosure requirements. However, those costs are also likely to be small. Further, the small regulatory costs associated with implementing proposed three-year transition schedule will be demonstrably less than the benefits posed by utilizing the schedule for those institutions that opt to utilize it.
Therefore, the
Alternatives Considered
As an alternative to the proposed rule, the
Solicitation of Comments
The FDIC invites comments on all aspects of the supporting information provided in this RFA section. Particularly, the
C. Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires the federal banking agencies to use plain language in all proposed and final rules published after
* Have the agencies organized the material to suit your needs? If not, how could they present the proposed rule more clearly?
* Are the requirements in the proposed rule clearly stated? If not, how could the proposed rule be more clearly stated?
* Do the regulations contain technical language or jargon that is not clear? If so, which language requires clarification?
* Would a different format (grouping and order of sections, use of headings, paragraphing) make the regulation easier to understand? If so, what changes would achieve that?
* Would more, but shorter, sections be better? If so, which sections should be changed?"
* What other changes can the agencies incorporate to make the regulation easier to understand?
D. OCC Unfunded Mandates Reform Act of 1995
The OCC analyzed the proposed rule under the factors set forth in the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532). Under this analysis, the OCC considered whether the proposed rule includes a federal mandate that may result in the expenditure by state, local, and Tribal governments, in the aggregate, or by the private sector, of
E.
The Riegle Community Development and Regulatory Improvement Act of 1994 (RCDRIA) requires that each federal banking agency, in determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on insured depository institutions, consider, consistent with principles of safety and soundness and the public interest, any administrative burdens that such regulations would place on depository institutions, including small depository institutions, and customers of depository institutions, as well as the benefits of such regulations. In addition, new regulations and amendments to regulations that impose additional reporting, disclosures, or other new requirements on insured depository institutions generally must take effect on the first day of a calendar quarter that begins on or after the date on which the regulations are published in final form. /36/
FOOTNOTE 36 12 U.S.C. 4802. END FOOTNOTE
The agencies note that comment on these matters has been solicited in other sections of this Supplementary Information section, and that the requirements of RCDRIA will be considered as part of the overall rulemaking process. In addition, the agencies also invite any other comments that further will inform the agencies' consideration of RCDRIA.
List of Subjects
12 CFR Part 1
Banks, banking, National banks, Reporting and recordkeeping requirements, Securities.
12 CFR Part 3
Administrative practice and procedure, Capital, National banks, Risk.
12 CFR Part 5
Administrative practice and procedure, Federal savings associations, National banks, Reporting and recordkeeping requirements, Securities.
12 CFR Part 23
Banks, banking, National banks, Lease financing transactions, Leasing, Reporting and recordkeeping requirements.
12 CFR Part 24
Affordable housing, Community development, Credit, Investments, Economic development and job creation, Low- and moderate-income areas, Low- and moderate-income housing, National banks, Public welfare investments, Reporting and recordkeeping requirements, Rural areas, Small businesses, Tax credit investments.
12 CFR Part 32
National banks, Reporting and recordkeeping requirements.
12 CFR Part 34
Appraisal, Appraiser, Banks, banking, Consumer protection, Credit, Mortgages, National banks, Reporting and recordkeeping requirements, Savings associations, Truth in lending.
12 CFR Part 46
Banking, Banks, Capital, Disclosures, National banks, Recordkeeping, Risk, Savings associations, Stress test.
12 CFR Part 208
Confidential business information, Crime, Currency,
12 CFR Part 211
Exports,
12 CFR Part 215
Credit, Penalties, Reporting and recordkeeping requirements.
12 CFR Part 217
Administrative practice and procedure, Banks, Banking, Capital,
12 CFR Part 223
Banks, Banking,
12 CFR Part 225
Administrative practice and procedure, Banks, banking,
12 CFR Part 252
Administrative practice and procedure, Banks, banking,
12 CFR Part 324
Administrative practice and procedure, Banks, banking, Reporting and recordkeeping requirements, Savings associations.
12 CFR Part 325
Banks, banking, Reporting and recordkeeping requirements.
12 CFR Part 327
Bank deposit insurance, Banks, banking, Savings associations.
12 CFR Part 347
Authority delegation (Government agencies), Bank deposit insurance, Banks, banking, Credit, Foreign banking, Investments, Reporting and recordkeeping requirements,
12 CFR Part 390
Administrative practice and procedure, Advertising, Aged, Civil rights, Conflict of interests, Credit, Crime, Equal employment opportunity, Fair housing, Government employees, Individuals with disabilities, Reporting and recordkeeping requirements, Savings associations.
For the reasons set out in the joint preamble, the OCC proposes to amend 12 CFR chapter I as follows.
PART 1--INVESTMENT SECURITIES
1. The authority citation for part 1 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 24 (Seventh), and 93a.
2. Section 1.2 is amended by revising paragraph (a)(2) to read as follows:
(a) * * *
(2) The balance of a bank's allowance for loan and lease losses or allowance for credit losses, as applicable, not included in the bank's Tier 2 capital, for purposes of the calculation of risk-based capital described in paragraph (a)(1) of this section, as reported in the bank's Call Report.
* * * * *
PART 3--CAPITAL ADEQUACY STANDARDS
3. The authority citation for part 3 continues to read as follows:
Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818, 1828(n), 1828 note, 1831n note, 1835, 3907, 3909, and 5412(b)(2)(B).
4. Section 3.2 is amended by:
a. Adding the definitions of Allowance for credit losses (ACL) in alphabetical order;
b. Revising the definition of Carrying value;
c. Adding the definition of Current expected credit losses (CECL) in alphabetical order; and
d. Revising the definition of Eligible credit reserves and paragraph (2) of the definition of Standardized total risk-weighted assets.
The revisions and additions read as follows:
* * * * *
Allowance for credit losses (ACL) means, with respect to a national bank or Federal savings association that has adopted CECL, 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, allowance 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. Allowance for credit losses excludes "allocated transfer risk reserves" and allowances created that reflect credit losses on purchased credit-deteriorated assets and available-for-sale debt securities.
* * * * *
Carrying value means, with respect to an asset, the value of the asset on the balance sheet of the national bank or Federal savings association as determined in accordance with GAAP. 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.
* * * * *
Current expected credit losses (CECL) means the current expected credit losses methodology under GAAP.
* * * * *
Eligible credit reserves means:
(1) For a national bank or Federal savings association that has not adopted CECL, all general allowances that have been established through a charge against earnings to cover estimated credit losses associated with on- or off-balance sheet wholesale and retail exposures, including the ALLL associated with such exposures, but excluding allocated transfer risk reserves established pursuant to 12 U.S.C. 3904 and other specific reserves created against recognized losses; and
(2) For a national bank or Federal savings association that has adopted CECL, all general allowances that have been established through a charge against earnings or retained earnings to cover expected credit losses associated with on- or off-balance sheet wholesale and retail exposures, including ACL associated with such exposures. Eligible credit reserves exclude allocated transfer risk reserves established pursuant to 12 U.S.C. 3904, allowances that reflect credit losses on purchased credit-deteriorated assets and available-for-sale debt securities, and other specific reserves created against recognized losses.
* * * * *
Standardized total risk-weighted assets * * *
(2) Any amount of a national bank's or Federal savings association's allowance for loan and lease losses or allowance for credit losses, as applicable, that is not included in tier 2 capital and any amount of "allocated transfer risk reserves."
* * * * *
5. Section 3.10(c)(3)(ii)(A) is amended by removing the words "allowance for loan and lease losses" and adding in their place the words "allowance for loan and lease losses or allowance for credit losses, as applicable,".
SUBSEC 3.20, 3.22, and 3.124 [Amended]
6. Sections 3.20, 3.22, and 3.124 are amended by removing "ALLL" everywhere it appears and adding in its place "ALLL or ACL, as applicable,", except the second occurrence in
7. Section 3.63 is amended in Table 5 by removing "allowance for loan and lease losses," and "allowance for loan and lease losses" and adding in their place "allowance for loan and lease losses or allowance for credit losses, as applicable," and removing "ALLL" and adding in its place "ALLL or ACL, as applicable".
8. Section 3.173 is amended:
a. In Table 2, by adding paragraph (e);
b. In Table 3, by revising paragraph (e), redesignating paragraph (f) as paragraph (g), and adding a new paragraph (f); and
c. In Table 5, by:
i. Removing "allowance for loan and lease losses," and "allowance for loan and lease losses" and adding in their place "allowance for loan and lease losses or allowance for credit losses, as applicable,"; and
ii. Revising paragraph (g).
The additions and revisions read as follows:
* * * * *
Table 2 to S. 3.173--Capital Structure * * * * * * * (e) (1) Whether the national bank or Federal savings association has elected to phase in recognition of the transitional adjustment amount as defined in S. 3.301. (2) The national bank's or Federal savings association's common equity tier 1 capital, tier 1 capital, and total capital without including the transitional adjustment amount.
Table 3 to S. 3.173--Capital Adequacy * * * * * * * (e) (1) Common equity tier 1, tier 1 and total risk-based capital ratios reflecting the transition provisions described in S. 3.301: (A) For the top consolidated group; and (2) For each depository institution subsidiary. (f) Common equity tier 1, tier 1 and total risk-based capital ratios reflecting the full adoption of CECL: (1) For the top consolidated group; and (2) For each depository institution subsidiary. * * * * * * *
* * * * *
Table 5 *1 to S. 3.173--Credit Risk: General Disclosures * * * * * * * (g) Reconciliation of changes in ALLL or ACL, as applicable. *6 * * * * * * * *1 Table 5 to S. 3.173 does not cover equity exposures, which should be reported in Table 9. ******* *6 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 probable loan 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.
* * * * *
9. Section 3.301 is added to read as follows:
(a) CECL transition provision --(1) A national bank or Federal savings association may elect to use a CECL transition provision pursuant to this section only if the national bank or Federal savings association records a reduction in retained earnings due to the adoption of CECL as of the beginning of the fiscal year in which the national bank or Federal savings association adopts CECL.
(2) A national bank or Federal savings association that elects to use the CECL transition provision must use the CECL transition provision in the first Call Report that includes CECL filed by the national bank or Federal savings association after it adopts CECL.
(3) A national bank or Federal savings association that does not elect to use the CECL transition provision as of the first Call Report 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 (twelve quarters) beginning the first day of the fiscal year in which a national bank or Federal savings association adopts CECL.
(2) CECL transitional amount means the decrease net of any DTAs in the amount of a national bank's or Federal savings association's retained earnings as of the beginning of the fiscal year in which the national bank or Federal savings association adopts CECL from the amount of the national bank's or Federal savings association's retained earnings as of the closing of the fiscal year-end immediately prior to the national bank's or Federal savings association's adoption of CECL.
(3) DTA transitional amount means the increase in the amount of a national bank's or Federal savings association's DTAs arising from temporary differences as of the beginning of the fiscal year in which the national bank or Federal savings association adopts CECL from the amount of the national bank's or Federal savings association's DTAs arising from temporary differences as of the closing of the fiscal year-end immediately prior to the national bank's or Federal savings association's adoption of CECL.
(4) ACL transitional amount means the difference in the amount of a national bank's or Federal savings association's ACL as of the beginning of the fiscal year in which the national bank or Federal savings association adopts CECL and the amount of the national bank's or Federal savings association's ALLL as of the closing of the fiscal year-end immediately prior to the national bank's or Federal savings association's adoption of CECL.
(5) Eligible credit reserves transitional amount means the increase in the amount of a national bank's or Federal savings association's eligible credit reserves as of the beginning of the fiscal year in which the national bank or Federal savings association adopts CECL from the amount of the national bank's or Federal savings association's eligible credit reserves as of the closing of the fiscal year-end immediately prior to the national bank's or Federal savings association's adoption of CECL.
(c) Calculation of CECL transition provision. (1) For purposes of the election described in paragraph (a)(1) of this section, a national bank or Federal savings association must make the following adjustments in its calculation of regulatory capital ratios:
(i) Increase retained earnings by seventy-five percent of its CECL transitional amount during the first year of the transition period, increase retained earnings by fifty percent of its CECL transitional amount during the second year of the transition period, and increase retained earnings by twenty-five percent of its CECL transitional amount during the third year of the transition period;
(ii) Decrease amounts of DTAs arising from temporary differences by seventy-five percent of its DTA transitional amount during the first year of the transition period, decrease amounts of DTAs arising from temporary differences by fifty percent of its DTA transitional amount during the second year of the transition period, and decrease amounts of DTAs arising from temporary differences by twenty-five percent of its DTA transitional amount during the third year of the transition period;
(iii) Decrease amounts of ACL by seventy-five percent of its ACL transitional amount during the first year of the transition period, decrease amounts of ACL by fifty percent of its ACL transitional amount during the second year of the transition period, and decrease amounts of ACL by twenty-five percent of its ACL transitional amount during the third year of the transition period; and
(iv) Increase average total consolidated assets as reported on the Call Report for purposes of the leverage ratio by seventy-five 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 for purposes of the leverage ratio by fifty 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 for purposes of the leverage ratio twenty-five 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 national bank or Federal savings association must make the following additional adjustments to its calculation of regulatory capital ratios:
(i) Increase total leverage exposure for purposes of the supplementary leverage ratio by seventy-five 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 fifty 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 twenty-five percent of its CECL transitional amount during the third year of the transition period; and
(ii) An advanced approaches national bank or Federal savings association that has completed the parallel run process and that has received notification from the OCC pursuant to
(3) A national bank or Federal savings association that has completed the parallel run process and that has received notification from the OCC pursuant to
(4) Notwithstanding any other requirement in this section, for purposes of this paragraph (c)(4), in the event of a business combination involving a national bank or Federal savings association where one or both of the national bank or Federal savings association have elected the treatment described in this section:
(i) If the acquirer national bank or Federal savings association (as determined under GAAP) elected the treatment described in this section, the acquirer national bank or Federal savings association 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.
(ii) If the acquired insured depository institution (as determined under GAAP) elected the treatment described in this section, any transitional amount of the acquired insured depository institution does not transfer to the resulting national bank or Federal savings association.
PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES
10. The authority citation for part 5 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 24a, 93a, 215a-2, 215a-3, 481, 1462a, 1463, 1464,
11. Section 5.3 is amended by revising paragraph (e)(2) to read as follows:
* * * * *
(e) * * *
(2) The balance of a national bank's or Federal savings association's allowance for loan and lease losses or allowance for credit losses, as applicable, not included in the bank's Tier 2 capital, for purposes of the calculation of risk-based capital described in paragraph (e)(1) of this section, as reported in the Call Report.
* * * * *
12. Section 5.37 is amended by revising paragraph (c)(3)(ii) to read as follows:
* * * * *
(c) * * *
(3) * * *
(ii) The balance of a national bank's or Federal savings association's allowance for loan and lease losses or allowance for credit losses, as applicable, not included in the bank's Tier 2 capital, for purposes of the calculation of risk-based capital described in paragraph (c)(3)(i) of this section, as reported in the Call Report.
* * * * *
PART 23--LEASING
13. The authority citation for part 23 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 24(Seventh), 24(Tenth), and 93a.
14. Section 23.2 is amended by revising paragraph (b)(2) to read as follows:
* * * * *
(b) * * *
(2) The balance of a bank's allowance for loan and lease losses or allowance for credit losses, as applicable, not included in the bank's Tier 2 capital, for purposes of the calculation of risk-based capital described in paragraph (b)(1) of this section, as reported in the bank's Call Report.
* * * * *
PART 24--COMMUNITY AND ECONOMIC DEVELOPMENT ENTITIES, COMMUNITY DEVELOPMENT PROJECTS, AND OTHER PUBLIC WELFARE INVESTMENTS
15. The authority citation for part 24 continues to read as follows:
Authority: 12 U.S.C. 24(Eleventh), 93a, 481 and 1818.
16. Section 24.2 is amended by revising paragraph (b)(2) to read as follows:
* * * * *
(b) * * *
(2) The balance of a bank's allowance for loan and lease losses or allowance for credit losses, as applicable, not included in the bank's Tier 2 capital, for purposes of the calculation of risk-based capital described in paragraph (b)(1) of this section, as reported in the bank's Call Report.
* * * * *
PART 32--LENDING LIMITS
17. The authority citation for part 32 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 12 U.S.C. 84, 93a, 1462a, 1463, 1464(u), 5412(b)(2)(B), and 15 U.S.C. 1639h.
18. Section 32.2 is amended by revising paragraph (c)(2) to read as follows:
* * * * *
(c) * * *
(2) The balance of a national bank's or savings association's allowance for loan and lease losses or allowance for credit losses, as applicable, not included in the bank's Tier 2 capital, for purposes of the calculation of risk-based capital described in paragraph (c)(1) of this section, as reported in the bank's Call Report.
* * * * *
PART 34--REAL ESTATE LENDING AND APPRAISALS
19. The authority citation for part 32 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 25b, 29, 93a, 371, 1462a, 1463, 1464, 1465, 1701j-3, 1828(o), 3331 et seq., 5101 et seq., and 5412(b)(2)(B) and 15 U.S.C. 1639h.
20. Section 34.81 is amended by revising paragraph (a)(2) to read as follows:
(a) * * *
(2) The balance of a bank's allowance for loan and lease losses or allowance for credit losses, as applicable, not included in the bank's Tier 2 capital, for purposes of the calculation of risk-based capital described in paragraph (a)(1) of this section, as reported in the bank's Call Report.
* * * * *
PART 46--ANNUAL STRESS TEST
21. The authority citation for part 46 continues to read as follows:
Authority: 12 U.S.C. 93a; 1463(a)(2); 5365(i)(2); and 5412(b)(2)(B).
22. Section 46.8 is amended by removing the phrase "loan and lease" and adding in its place "credit" wherever that phrase appears.
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the preamble, chapter II of title 12 of the Code of Federal Regulations is proposed to be amended as follows:
PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL RESERVE SYSTEM (REGULATION H)
23. The authority citation for part 208 continues to read as follows:
Authority: 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-338a, 371d, 461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 1833(j), 1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1831w, 1831x, 1835a, 1882, 2901-2907, 3105, 3310, 3331-3351, 3905-3909, and 5371; 15 U.S.C. 78b, 78I(b), 78l(i), 780-4(c)(5), 78q, 78q-1, and 78w, 1681s, 1681w, 6801, and 6805; 31 U.S.C. 5318; 42 U.S.C. 4012a, 4104a, 4104b, 4106 and 4128.
24. In
* * * * *
(d) Capital stock and surplus means, unless otherwise provided in this part, or by statute:
(1) Tier 1 and tier 2 capital included in a member bank's risk-based capital (as defined in
(2) The balance of a member bank's allowance for loan and lease losses or allowance for credit losses, as applicable, not included in its tier 2 capital for calculation of risk-based capital, based on the bank's most recent Report of Condition and Income filed under 12 U.S.C. 324.
* * * * *
PART 211--INTERNATIONAL BANKING OPERATIONS (REGULATION K)
25. The authority citation for part 211 continues to read as follows:
Authority: 12 U.S.C.
Subpart A--International Operations of
26. In
* * * * *
(c) Capital and surplus means, unless otherwise provided in this part:
(1) For organizations subject to 12 CFR part 217 (Regulation Q):
(i) Tier 1 and tier 2 capital included in an organization's risk-based capital (under Regulation Q); and
(ii) The balance of allowance for loan and lease losses or allowance for credit losses, as applicable, not included in an organization's tier 2 capital for calculation of risk-based capital, based on the organization's most recent consolidated Report of Condition and Income.
* * * * *
Subpart D--International Lending Supervision
27. In
* * * * *
(c) * * *
(4) Alternative accounting treatment. A banking institution is not required to establish an ATRR if it writes down in the period in which the ATRR is required, or has written down in prior periods, the value of the specified international assets in the requisite amount for each such asset. For purposes of this paragraph (c)(4), international assets may be written down by a charge to the Allowance for Loan and Lease Losses or the allowance for credit losses, as applicable, to the extent permitted under
* * * * *
PART 215--LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS OF MEMBER BANKS (REGULATION O)
28. The authority citation for part 215 continues to read as follows:
Authority: 12 U.S.C. 248(a), 375a(10), 375b(9) and (10), 1468, 1817(k), 5412; and Pub. L. 102-242, 105 Stat. 2236 (1991).
29. In
* * * * *
(i) * * *
(2) The balance of the bank's allowance for loan and lease losses or allowance for credit losses, as applicable, not included in the bank's tier 2 capital for purposes of the calculation of risk-based capital under the capital rules of the appropriate Federal banking agency, based on the bank's most recent consolidated reports of condition filed under 12 U.S.C. 1817(a)(3).
* * * * *
PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)
30. The authority citation for part 217 continues to read as follows:
Authority: 12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a, 1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1851, 3904, 3906-3909, 4808, 5365, 5368, 5371.
31. In
a. Add the definition of Allowance for credit losses (ACL) in alphabetical order;
b. Revise the definition of Carrying value;
c. Add the definition of Current expected credit losses (CECL) in alphabetical order; and
d. Revise the definition of Eligible credit reserves and paragraph (2) of the definition of Standardized total risk-weighted assets.
The additions and revisions read as follows:
* * * * *
Allowance for credit losses (ACL) means, with respect to a Board-regulated institution that has adopted CECL, 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, allowance 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. Allowance for credit losses excludes "allocated transfer risk reserves" and allowances created that reflect credit losses on purchased credit-deteriorated assets and available-for-sale debt securities.
* * * * *
Carrying value means, with respect to an asset, the value of the asset on the balance sheet of a Board-regulated institution as determined in accordance with GAAP. 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.
* * * * *
Current expected credit losses (CECL) means the current expected credit losses methodology under GAAP.
* * * * *
Eligible credit reserves means:
(1) For a Board-regulated institution that has not adopted CECL, all general allowances that have been established through a charge against earnings to cover estimated credit losses associated with on- or off-balance sheet wholesale and retail exposures, including the ALLL associated with such exposures, but excluding allocated transfer risk reserves established pursuant to 12 U.S.C. 3904 and other specific reserves created against recognized losses; and
(2) For a Board-regulated institution that has adopted CECL, all general allowances that have been established through a charge against earnings or retained earnings to cover expected credit losses associated with on- or off-balance sheet wholesale and retail exposures, including ACL associated with such exposures. Eligible credit reserves exclude allocated transfer risk reserves established pursuant to 12 U.S.C. 3904, allowances that reflect credit losses on purchased credit-deteriorated assets and available-for-sale debt securities, and other specific reserves created against recognized losses.
* * * * *
Standardized total risk-weighted assets * * *
(2) Any amount of the Board-regulated institution's allowance for loan and lease losses or allowance for credit losses, as applicable, that is not included in tier 2 capital and any amount of "allocated transfer risk reserves."
* * * * *
32. In
SUBSEC 217.20(d)(3), 217.22, and 217.124 [Amended]
33. In SUBSEC 217.20, 217.22, and 217.124, remove "ALLL" everywhere it appears and add in its place "ALLL or ACL, as applicable,".
34. In Table 5 to
35. Amend
a. In Table 2, add paragraph (e);
b. In Table 3, revise paragraph (e), redesignate paragraph (f) as paragraph (g), and add a new paragraph (f); and
c. In Table 5, revise paragraphs (a), (e), and (g).
The additions and revisions read as follows:
* * * * *
Table 2 to S. 217.173--Capital Structure * * * * * * * (e) (1) Whether the Board-regulated institution has elected to phase in recognition of the transitional amounts as defined in S. 217.300(f). (2) The Board-regulated institution's common equity tier 1 capital, tier 1 capital, and total capital without including the transitional amounts as defined in S. 217.300(f).
Table 3 to S. 217.173--Capital Adequacy * * * * * * * (e) (1) Common equity tier 1, tier 1 and total risk-based capital ratios reflecting the transition provisions described in S. 217.300(f): (A) For the top consolidated group; and (2) For each depository institution subsidiary. (f) Common equity tier 1, tier 1 and total risk-based capital ratios reflecting the full adoption of CECL: (1) For the top consolidated group; and (2) For each depository institution subsidiary. * * * * * * *
* * * * *
Table 5 *1 to S. 217.173--Credit Risk: General Disclosures Qualitative (a) The general qualitative disclosure disclosures requirement with respect to credit risk (excluding counterparty credit risk disclosed in accordance with Table 7 to S. 217.173), including: (1) Policy for determining past due or delinquency status; (2) Policy for placing loans on nonaccrual; (3) Policy for returning loans to accrual status; (4) Definition of and policy for identifying impaired loans (for financial accounting purposes); (5) Description of the methodology that the entity uses to estimate its allowance for loan and lease losses or allowance for credit losses, as applicable, including statistical methods used where applicable; (6) Policy for charging-off uncollectible amounts; and (7) Discussion of the Board-regulated institution's credit risk management policy. * * * * * * * (e) By major industry or counterparty type: (1) Amount of impaired loans for which there was a related allowance under GAAP; (2) Amount of impaired loans for which there was no related allowance under GAAP; (3) Amount of loans past due 90 days and on nonaccrual; (4) Amount of loans past due 90 days and still accruing; *4 (5) The balance in the allowance for loan and lease losses or allowance for credit losses, as applicable, at the end of each period, disaggregated on the basis of the entity's impairment method. To disaggregate the information required on the basis of impairment methodology, an entity shall separately disclose the amounts based on the requirements in GAAP; and (6) Charge-offs during the period. * * * * * * * (g) Reconciliation of changes in ALLL or ACL, as applicable. *6 * * * * * * * *1 Table 5 to S. 217.173 does not cover equity exposures, which should be reported in Table 9. ******* *4 A Board-regulated institution is encouraged also to provide an analysis of the aging of past-due loans. ******* *6 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 probable loan 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.
* * * * *
36. Add
(a) CECL transition provision --(1) 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) A Board-regulated institution that elects to use the CECL transition provision must 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 (twelve quarters) beginning the first day of the fiscal year in which a Board-regulated institution adopts CECL.
(2) CECL transitional amount means the decrease 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 increase 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) ACL transitional amount means the difference in the amount of a Board-regulated institution's ACL 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 increase 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 CECL transition provision. (1) For purposes of the election described in paragraph (a)(1) of this section, a Board-regulated institution must make the following adjustments in its calculation of regulatory capital ratios:
(i) Increase retained earnings by seventy-five percent of its CECL transitional amount during the first year of the transition period, increase retained earnings by fifty percent of its CECL transitional amount during the second year of the transition period, and increase retained earnings by twenty-five percent of its CECL transitional amount during the third year of the transition period;
(ii) Decrease amounts of DTAs arising from temporary differences by seventy-five percent of its DTA transitional amount during the first year of the transition period, decrease amounts of DTAs arising from temporary differences by fifty percent of its DTA transitional amount during the second year of the transition period, and decrease amounts of DTAs arising from temporary differences by twenty-five percent of its DTA transitional amount during the third year of the transition period;
(iii) Decrease amounts of ACL by seventy-five percent of its ACL transitional amount during the first year of the transition period, decrease amounts of ACL by fifty percent of its ACL transitional amount during the second year of the transition period, and decrease amounts of ACL by twenty-five percent of its ACL 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 seventy-five 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 fifty 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 twenty-five 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 Board-regulated institution must make the following additional adjustments to its calculation of regulatory capital ratios:
(i) Increase total leverage exposure for purposes of the supplementary leverage ratio by seventy-five 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 fifty 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 twenty-five 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 has received notification from the Board pursuant to
(3) An advanced approaches Board-regulated institution that has completed the parallel run process and has received notification from the Board pursuant to
(4) Notwithstanding any other requirement in this section, for purposes of this paragraph (c)(4), in the event of a business combination involving Board-regulated institutions where one or both Board-regulated institutions have elected the treatment described in this section:
(i) 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.
(ii) 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.
PART 223--TRANSACTIONS BETWEEN MEMBER BANKS AND THEIR AFFILIATES (REGULATION W)
37. The authority citation for part 223 continues to read as follows:
Authority: 12 U.S.C. 371c(b)(1)(E), (b)(2)(A), and (f), 371c-1(e), 1828(j), 1468(a), and section 312(b)(2)(A) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 5412).
Subpart A--Introduction and Definitions
38. In
* * * * *
(d) Capital stock and surplus means the sum of:
(1) A member bank's tier 1 and tier 2 capital under the capital rules of the appropriate Federal banking agency, based on the member bank's most recent consolidated Report of Condition and Income filed under 12 U.S.C. 1817(a)(3);
(2) The balance of a member bank's allowance for loan and lease losses or allowance for credit losses, as applicable, not included in its tier 2 capital under the capital rules of the appropriate Federal banking agency, based on the member bank's most recent consolidated Report of Condition and Income filed under 12 U.S.C. 1817(a)(3); and
(3) The amount of any investment by a member bank in a financial subsidiary that counts as a covered transaction and is required to be deducted from the member bank's capital for regulatory capital purposes.
* * * * *
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL (REGULATION Y)
39. The authority citation for part 225 continues to read as follows:
Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1831i, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3906, 3907 and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805.
40. In
a. Remove "225.25(b)(6)" everywhere it appears and add in its place "225.28(b)(12)" and remove "
b. Revise paragraph (h).
The revision reads as follows:
* * * * *
(h) For purposes of paragraph (f) of this section, five percent of the total consolidated capital stock and surplus of a bank holding company includes its total investment in projects described in paragraph (f) of this section, when aggregated with similar types of investments made by depository institutions controlled by the bank holding company. The term total consolidated capital stock and surplus of the bank holding company means total equity capital and the allowance for loan and lease losses or allowance for credit losses, as applicable, based on the bank holding company's most recent FR Y-9C (Consolidated Financial Statements for Holding Companies) or FR Y-9SP (Parent Company Only Financial Statements for Small Holding Companies).
PART 252--ENHANCED PRUDENTIAL STANDARDS (REGULATION YY)
41. The authority citation for part 252 continues to read as follows:
Authority: 12 U.S.C. 321-338a, 481-486, 1467a, 1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1844(c), 3101 et seq., 3101 note, 3904, 3906-3909, 4808, 5361, 5362, 5365, 5366, 5367, 5368, 5371.
Subpart B--Company-Run Stress Test Requirements for Certain
42. In
* * * * *
(m) Provision for credit losses means:
(1) Until
(i) With respect to a bank holding company, savings and loan holding company, or state member bank that has not adopted the current expected credit losses methodology under
(ii) With respect to a bank holding company, savings and loan holding company, or state member bank that has adopted the current expected credit losses methodology under GAAP, the provision for loan and lease losses, as would be calculated and reported on the FR Y-9C or Call Report, as appropriate, by a bank holding company, savings and loan holding company, or state member bank that has not adopted the current expected credit losses methodology under GAAP; and
(2) Beginning
(i) With respect to a covered company that has adopted the current expected credit losses methodology under GAAP, the provision for credit losses, as would be reported by the bank holding company, savings and loan holding company, or state member bank on the FR Y-9C or Call Report, as appropriate, in the current stress test cycle; and
(ii) With respect to a bank holding company, savings and loan holding company, or state member bank that has not adopted the current expected credit losses methodology under GAAP, the provision for loan and lease losses as would be reported by the bank holding company, savings and loan holding company, or state member bank on the FR Y-9C or Call Report, as appropriate, in the current stress test cycle.
* * * * *
43. In
(a) * * *
(1) Losses, pre-provision net revenue, provision for credit losses, and net income; and
(2) The potential impact on the regulatory capital levels and ratios applicable to the covered bank, and any other capital ratios specified by the Board, incorporating the effects of any capital action over the planning horizon and maintenance of an allowance for loan losses or allowance for credit losses, as appropriate, for credit exposures throughout the planning horizon.
* * * * *
44. In
* * * * *
(b) * * *
(3) For each quarter of the planning horizon, estimates of aggregate losses, pre-provision net revenue, provision for credit losses, net income, and regulatory capital ratios;
* * * * *
45. In
* * * * *
(b) * * *
(1) * * *
(iii) * * *
(C) Provision for credit losses;
* * * * *
(3) * * *
(iii) * * *
(C) Provision for credit losses;
* * * * *
(c) * * *
(1) The disclosure of aggregate losses, pre-provision net revenue, provision for credit losses, and net income that is required under paragraph (b) of this section must be on a cumulative basis over the planning horizon.
* * * * *
Subpart E--Supervisory Stress Test Requirements for
46. In
* * * * *
(l) Provision for credit losses means:
(1) Until
(i) With respect to a covered company that has not adopted the current expected credit losses methodology under
(ii) With respect to a covered company that has adopted the current expected credit losses methodology under GAAP, the provision for loan and lease losses, as would be calculated and reported on the FR Y-9C by a covered company that has not adopted the current expected credit losses methodology under GAAP; and
(2) Beginning
(i) With respect to a covered company that has adopted the current expected credit losses methodology under GAAP, the provision for credit losses, as would be reported by the covered company on the FR Y-9C in the current stress test cycle; and,
(ii) With respect to a covered company that has not adopted the current expected credit losses methodology under GAAP, the provision for loan and lease losses as would be reported by the covered company on the FR Y-9C in the current stress test cycle.
* * * * *
47. In
* * * * *
(b) * * *
(2) Project a company's pre-provision net revenue, losses, provision for credit losses, and net income; and pro forma capital levels, regulatory capital ratios, and any other capital ratio specified by the Board under the scenarios described in
* * * * *
Subpart F--Company-Run Stress Test Requirements for
48. In
* * * * *
(m) Provision for credit losses means:
(1) Until
(i) With respect to a covered company that has not adopted the current expected credit losses methodology under GAAP, the provision for loan and lease losses as reported on the FR Y-9C (and as would be reported on the FR Y-9C in the current stress test cycle); and
(ii) With respect to a covered company that has adopted the current expected credit losses methodology under GAAP, the provision for loan and lease losses, as would be calculated and reported on the FR Y-9C by a covered company that has not adopted the current expected credit losses methodology under GAAP; and
(2) Beginning
(i) With respect to a covered company that has adopted the current expected credit losses methodology under GAAP, the provision for credit losses, as would be reported by the covered company on the FR Y-9C in the current stress test cycle; and
(ii) With respect to a covered company that has not adopted the current expected credit losses methodology under GAAP, the provision for loan and lease losses as would be reported by the covered company on the FR Y-9C in the current stress test cycle.
* * * * *
49. In
(a) * * *
(1) Losses, pre-provision net revenue, provision for credit losses, and net income; and
(2) The potential impact on the regulatory capital levels and ratios applicable to the covered bank, and any other capital ratios specified by the Board, incorporating the effects of any capital action over the planning horizon and maintenance of an allowance for loan losses or allowance for credit losses, as appropriate, for credit exposures throughout the planning horizon.
* * * * *
50. In
* * * * *
(b) * * *
(2) A general description of the methodologies used in the stress test, including those employed to estimate losses, revenues, provision for credit losses, and changes in capital positions over the planning horizon;
(3) * * *
(ii) Provision for credit losses, realized losses or gains on available-for-sale and held-to-maturity securities, trading and counterparty losses or gains;
* * * * *
(c) * * *
(1) * * *
(ii) Provision for credit losses, realized losses/gains on available-for-sale and held-to-maturity securities, trading and counterparty losses, and other losses or gain;
* * * * *
12 CFR Chapter III
Authority and Issuance
For the reasons stated in the preamble, the
PART 324--CAPITAL ADEQUACY OF FDIC-SUPERVISED INSTITUTIONS
51. The authority citation for part 324 continues to read as follows:
Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b), 1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n), 1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102-233, 105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 105 Stat. 2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160, 2233 (12 U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, as amended by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 note); Pub. L. 111-203, 124 Stat. 1376, 1887 (15 U.S.C. 78o-7 note).
52. Section 324.2 is amended by:
a. Adding the definition of Allowance for credit losses (ACL) in alphabetical order;
b. Revising the definitions of Carrying value;
c. Adding the definition of Current expected credit losses (CECL) in alphabetical order; and
d. Revising the definitions of Eligible credit reserves and Identified losses and paragraph (2) of the definition of Standardized total risk-weighted assets.
The additions and revisions read as follows:
* * * * *
Allowance for credit losses (ACL) means, with respect to an
* * * * *
Carrying value means, with respect to an asset, the value of the asset on the balance sheet of the
* * * * *
Current expected credit losses (CECL) means the current expected credit losses methodology under GAAP.
* * * * *
Eligible credit reserves means:
(1) For an
(2) For an
* * * * *
Identified losses means:
(1) When measured as of the date of examination of an
(2) When measured as of any other date, those items:
(i) That have been determined--
(A) By an evaluation made by a state or Federal examiner at the most recent examination of an
(B) By evaluations made by the
(ii) For which the appropriate accounting entries to recognize the loss have not yet been made on the
* * * * *
Standardized total risk-weighted assets * * *
(2) Any amount of the
* * * * *
53. Section 324.10(c)(3)(ii)(A) is amended by removing the words "allowance for loan and lease losses" and adding in their place the words "allowance for loan and lease losses or allowance for credit losses, as applicable,".
SUBSEC 324.20, 324.22, and 324.124 [Amended]
54. Sections 324.20, 324.22, and 324.124 are amended by removing "ALLL" everywhere it appears and adding in its place "ALLL or ACL, as applicable,", except the second occurrence in
55. Table 5 to
56. Section 324.173 is amended:
a. In Table 2, by adding paragraph (e);
b. In Table 3, by revising paragraph (e), redesignating paragraph (f) as paragraph (g), and adding a new paragraph (f); and
c. In Table 5, by revising paragraphs (a), (e), and (g).
The additions and revisions read as follows:
* * * * *
Table 2 to S. 324.173--Capital Structure * * * * * * * (e) (1) Whether theFDIC -supervised institution has elected to phase in recognition of the transitional amounts as defined in S. 324.300(f). (2) TheFDIC -supervised institution's common equity tier 1 capital, tier 1 capital, and total capital without including the transitional amounts as defined in S. 324.300(f).
Table 3 to S. 324.173--Capital Adequacy * * * * * * * (e) (1) Common equity tier 1, tier 1 and total risk-based capital ratios reflecting the transition provisions described in S. 324.300(f): (A) For the top consolidated group; and (2) For each depository institution subsidiary. (f) Common equity tier 1, tier 1 and total risk-based capital ratios reflecting the full adoption of CECL: (1) For the top consolidated group; and (2) For each depository institution subsidiary. * * * * * * *
* * * * *
Table 5 *1 to S. 324.173--Credit Risk: General Disclosures Qualitative (a) The general qualitative disclosure disclosures requirement with respect to credit risk (excluding counterparty credit risk disclosed in accordance with Table 7 to S. 324.173), including: (1) Policy for determining past due or delinquency status; (2) Policy for placing loans on nonaccrual; (3) Policy for returning loans to accrual status; (4) Definition of and policy for identifying impaired loans (for financial accounting purposes); (5) Description of the methodology that the entity uses to estimate its allowance for loan and lease losses or allowance for credit losses, as applicable, including statistical methods used where applicable; (6) Policy for charging-off uncollectible amounts; and (7) Discussion of the FDIC-supervised institution's credit risk management policy. * * * * * * * (e) By major industry or counterparty type: (1) Amount of impaired loans for which there was a related allowance under GAAP; (2) Amount of impaired loans for which there was no related allowance under GAAP; (3) Amount of loans past due 90 days and on nonaccrual; (4) Amount of loans past due 90 days and still accruing; *4 (5) The balance in the allowance for loan and lease losses or allowance for credit losses, as applicable, at the end of each period, disaggregated on the basis of the entity's impairment method. To disaggregate the information required on the basis of impairment methodology, an entity shall separately disclose the amounts based on the requirements in GAAP; and (6) Charge-offs during the period. * * * * * * * (g) Reconciliation of changes in ALLL or ACL, as applicable. *6 * * * * * * * *1 Table 5 to S. 324.173 does not cover equity exposures, which should be reported in Table 9 to S. 324.173. ******* *4 An FDIC-supervised institution is encouraged also to provide an analysis of the aging of past-due loans. ******* *6 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 probable loan 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.
* * * * *
57. Add
(a) CECL transition provision --(1) An FDIC-supervised institution may elect to use a CECL transition provision pursuant to this section only if the
(2) An FDIC-supervised institution that elects to use the CECL transition provision must use the CECL transition provision in the first Call Report that includes CECL filed by the
(3) An FDIC-supervised institution that does not elect to use the CECL transition provision as of the first Call Report 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 (twelve quarters) beginning the first day of the fiscal year in which an
(2) CECL transitional amount means the decrease net of any DTAs in the amount of an
(3) DTA transitional amount means the increase in the amount of an
(4) ACL transitional amount means the difference in the amount of an
(5) Eligible credit reserves transitional amount means the increase in the amount of a
(c) Calculation of CECL transition provision. (1) For purposes of the election described in paragraph (a)(1) of this section, an
(i) Increase retained earnings by seventy-five percent of its CECL transitional amount during the first year of the transition period, increase retained earnings by fifty percent of its CECL transitional amount during the second year of the transition period, and increase retained earnings by twenty-five percent of its CECL transitional amount during the third year of the transition period;
(ii) Decrease amounts of DTAs arising from temporary differences by seventy-five percent of its DTA transitional amount during the first year of the transition period, decrease amounts of DTAs arising from temporary differences by fifty percent of its DTA transitional amount during the second year of the transition period, and decrease amounts of DTAs arising from temporary differences by twenty-five percent of its DTA transitional amount during the third year of the transition period;
(iii) Decrease amounts of ACL by seventy-five percent of its ACL transitional amount during the first year of the transition period, decrease amounts of ACL by fifty percent of its ACL transitional amount during the second year of the transition period, and decrease amounts of ACL by twenty-five percent of its ACL transitional amount during the third year of the transition period; and
(iv) Increase average total consolidated assets as reported on the Call Report for purposes of the leverage ratio by seventy-five 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 for purposes of the leverage ratio by fifty 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 for purposes of the leverage ratio twenty-five 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
(i) Increase total leverage exposure for purposes of the supplementary leverage ratio by seventy-five 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 fifty 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 twenty-five percent of its CECL transitional amount during the third year of the transition period; and
(ii) An advanced approaches
(3) An advanced approaches
(4) Notwithstanding any other requirement in this section, for purposes of this paragraph (c)(4), in the event of a business combination involving
(i) If the acquirer
(ii) If the acquired insured depository institution (as determined under GAAP) elected the treatment described in this section, any transitional amount of the acquired insured depository institution does not transfer to the resulting
PART 325--ANNUAL STRESS TEST
58. The authority citation for part 325 continues to read as follows:
Authority: 12 U.S.C. 5365(i)(2); 12 U.S.C. 5412(b)(2)(C); 12 U.S.C. 1818, 12 U.S.C. 1819(a)(Tenth), 12 U.S.C. 1831o, and 12 U.S.C. 1831p-1.
59. Section 325.2(g) is revised to read as follows:
* * * * *
(g) Provision for credit losses means:
(1) Until
(i) With respect to a state nonmember bank or state savings association that has not adopted the current expected credit losses methodology under
(ii) With respect to a state nonmember bank or state savings association that has adopted the current expected credit losses methodology under GAAP, the provision for loan and lease losses, as would be calculated and reported on the Call Report by a state nonmember bank or state savings association that has not adopted the current expected credit losses methodology under GAAP; and
(2) Beginning
(i) With respect to a state nonmember bank or state savings association that has adopted the current expected credit losses methodology under GAAP, the provision for credit losses, as reported in the Call Report in the current stress test cycle; and
(ii) With respect to a state nonmember bank or state savings association that has not adopted the current expected credit losses methodology under GAAP, the provision for loan and lease losses as would be reported in the Call Report in the current stress test cycle.
* * * * *
60. Section 325.5(a)(1) and (2) are revised to read as follows:
(a) * * *
(1) Pre-provision net revenues, losses, provision for credit losses, and net income; and
(2) The potential impact on the regulatory capital levels and ratios applicable to the covered bank, and any other capital ratios specified by the Corporation, incorporating the effects of any capital action over the planning horizon and maintenance of an allowance for loan losses or allowance for credit losses, as appropriate, for credit exposures throughout the planning horizon.
* * * * *
61. Section 325.6(b)(1) is revised to read as follows:
* * * * *
(b) * * *
(1) The reports required under paragraph (a) of this section must include under the baseline scenario, adverse scenario, severely adverse scenario and any other scenario required by the
* * * * *
62. Section 325.7 is amended by revising paragraphs (c)(3) and (d)(1) to read as follows:
* * * * *
(c) * * *
(3) Estimates of aggregate losses, pre-provision net revenue, provision for credit losses, net income, and pro forma capital ratios (including regulatory and any other capital ratios specified by the
* * * * *
(d) * * *
(1) The disclosure of aggregate losses, pre-provision net revenue, provisions for credit losses, and net income under this section must be on a cumulative basis over the planning horizon.
* * * * *
PART 327--ASSESSMENTS
63. The authority citation for part 327 continues to read as follows:
Authority: 12 U.S.C. 1441, 1813, 1815, 1817-19, 1821.
Subpart A--In General
64. Section 327.16 is amended by removing the words "allowance for loan and lease financing receivable losses (ALLL)" and adding in their place the words "allowance for loan and lease financing receivable losses (ALLL) or allowance for credit losses, as applicable".
PART 347--INTERNATIONAL BANKING
65. The authority citation for part 347 continues to read as follows:
Authority: 12 U.S.C. 1813, 1815, 1817, 1819, 1820, 1828, 3103, 3104, 3105, 3108, 3109; Pub L. 111-203, section 939A, 124 Stat. 1376, 1887 (
Subpart C--International Lending
66. Section 347.303 is amended by revising paragraphs (c)(2) and (4) to read as follows:
* * * * *
(c) * * *
(2) Separate accounting. A banking institution shall account for an ATRR separately from the Allowance for Loan and Lease Losses or allowance for credit losses, as applicable, and shall deduct the ATRR from "gross loans and leases" to arrive at "net loans and lease." The ATRR must be established for each asset subject to the ATRR in the percentage amount specified.
* * * * *
(4) Alternative accounting treatment. A banking institution need not establish an ATRR if it writes down in the period in which the ATRR is required, or has written down in prior periods, the value of the specified international assets in the requisite amount for each such asset. For purposes of this paragraph (c)(4), international assets may be written down by a charge to the Allowance for Loan and Lease Losses or allowance for credit losses, as applicable, or a reduction in the principal amount of the asset by application of interest payments or other collections on the asset; provided, that only those international assets that may be charged to the Allowance for Loan and Lease Losses or allowance for credit losses, as applicable, pursuant to
* * * * *
PART 390--REGULATIONS TRANSFERRED FROM THE
67. The authority citation for part 390 continues to read as follows:
Authority: 12 U.S.C. 1819.
Subpart T--Accounting Requirements
68. In the appendix to
Dated:
Comptroller of the Currency.
By order of the
Secretary of the Board.
Dated at
By order of the Board of Directors.
Assistant Executive Secretary.
[FR Doc. 2018-08999 Filed 5-11-18;
BILLING CODE 4810-33-6210-01-6714-01-P
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