Regulatory Agencies Approve New CECL Proposal
**Please check our most recent blog post regarding the latest changes to the FASB deadlines.**
On Friday, April 13, 2018, the federal banking agencies jointly issued a Notice of Proposed Rulemaking to amend their capital rules in response to “the biggest change yet” to bank accounting principles set forth in Accounting Standards Update ASU 2016-13, otherwise known as the current expected credit losses model, or CECL.
The notice is applicable to all institutions, including those under $1 billion in total assets. The Federal Reserve, the OCC and the FDIC said in a joint statement that the new rule would “provide an optional three-year transition arrangement that allows institutions to phase in any adverse regulatory capital effects on retained earnings, deferred tax assets, ACL and average total consolidated assets that might occur on day one of CECL adoption”.
Although the phasing of day-one regulatory capital effects of CECL and implementation of the standard are independent of each other, it is still worth noting the importance of the transition to the CECL model, given that the effective date for most institutions is twenty months away.
With the Federal Reserve, OCC and FDIC watching closely how institutions are reacting to and preparing for the change, consider news alerts or newsletters like ALLL.com to track news about the standard. In fact, many financial institutions are staying informed and have begun shifting their focus to CECL. Taken before the phase-in proposal was announced, a recent Sageworks poll of 403 representatives from financial institutions found that two-thirds are actively preparing for the accounting change.
Learn more about navigating the CECL transition.
At this point in the implementation timeline, it is recommended for institutions to be conducting an overarching data analysis, coordinating functional groups on CECL requirements and evaluating whether to build or buy a solution depending on the institution’s unique situation.
Comments on the proposal are due 60 days after the date of its publication in the Federal Register. For more information, see the proposal on the Federal Reserve Board’s website.