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Financial Institution Letter

Final Rule to Address the Temporary Deposit Insurance Assessment Effects of the Optional Regulatory Capital Transitions for Implementing the Current Expected Credit Losses (CECL) Methodology

February 16, 2021
Notes
 

Summary:

On February 16, 2021, the FDIC Board of Directors adopted a final rule addressing the temporary deposit insurance assessment effects resulting from certain optional regulatory capital transition provisions relating to the implementation of the current expected credit losses (CECL) methodology. The final rule removes the double counting of a specified portion of the CECL transitional amount or the modified CECL transitional amount, as applicable, in the calculation of certain financial measures that are used to determine assessment rates for large or highly complex insured depository institutions (IDIs).

Statement of Applicability: This Financial Institution Letter (FIL) does not impact institutions with less than $10 billion in assets, unless an institution is being treated as a large institution for deposit insurance assessment purposes.

Highlights:

  • In 2019 and 2020, the FDIC, the Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve System issued rules that allow banking organizations to phase in the adverse effects of CECL implementation on their regulatory capital ratios, and to provide the option to delay, for up to two years, an estimate of CECL’s effect on regulatory capital.
  • For banks electing the CECL regulatory capital transition provision or delay under the 2019 and 2020 rules, a specified portion of the CECL transitional amounts will be double counted in certain financial measures used to determine assessment rates for large or highly complex IDIs and that are calculated using both Tier 1 capital and reserves during the transition period.
  • The final rule amends the assessment regulations to remove the double counting of a specified portion of the CECL transitional amounts in certain financial measures that are used to determine assessment rates for large or highly complex IDIs.
  • The final rule also adjusts the calculation of the loss severity measure to remove the double counting of a specified portion of the CECL transitional amounts for large or highly complex IDIs.
  • The FDIC is continuing to allow the application of the CECL regulatory capital transition provisions to the Tier 1 leverage ratio used in determining deposit insurance assessment rates for all IDIs.
  • In order to implement these adjustments, the final rule requires large or highly complex IDIs that elect a CECL transition provision to report one additional, temporary item on the Consolidated Reports of Condition and Income (Call Report). (see FIL-117-2020 , dated December 30, 2020)
  • The effective date of the final rule is April 1, 2021 (which is the beginning of the second quarterly assessment period of 2021).

Distribution:

Insured depository institutions with $10 billion or more in total assets

Suggested Routing:

Chief Executive Officer 
Chief Financial Officer 
Call Report Preparer

Additional Related Topics:

  • Assessments, 12 CFR Part 327
FIL-7-2021
Attachment(s)

Last Updated: February 16, 2021