Skip to main content
U.S. flag
An official website of the United States government
Dot gov
The .gov means it’s official.
Federal government websites often end in .gov or .mil. Before sharing sensitive information, make sure you’re on a federal government site.
Https
The site is secure.
The https:// ensures that you are connecting to the official website and that any information you provide is encrypted and transmitted securely.
Financial Institution Letter
Revised Transition of the Current Expected Credit Losses Methodology for Allowances
August 26, 2020
Notes
 

Summary:

The Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Board of Governors of the Federal Reserve System (the agencies) have adopted final changes to the capital rule that allow banking organizations that adopt the current expected credit losses (CECL) methodology of estimating allowances for credit losses during the 2020 calendar year to have the option to delay for up to two years an estimate of CECL’s effect on regulatory capital followed by a three-year transition period.

A copy of the Final Rule can be found on the FDIC’s website.

Statement of Applicability to Institutions with Total Assets Under $1 Billion: This Financial Institution Letter (FIL) is applicable to banks that adopt CECL under U.S. generally accepted accounting principles during calendar year 2020.

Highlights:

  • The final rule is consistent with the interim final rule published in the Federal Register on March 31, 2020, with certain clarifications and minor adjustments related to the mechanics of the transition and the eligibility criteria for applying the transition.
  • The final rule provides banking organizations that were required to adopt CECL for purposes of U.S. generally accepted accounting principles for a fiscal year that begins during the 2020 calendar year the option to delay for up to two years an estimate of CECL’s effect on regulatory capital followed by a three-year transition period (the 2020 CECL transition).
  • The final rule would also permit use of the 2020 CECL transition provision by any banking organization that adopts CECL during the 2020 calendar year, including those that early adopt CECL.
  • In addition, the final rule would not require an electing banking organization to apply the transitional amounts in any quarter in which application of the transition provision would result in a reduction in retained earnings.
  • The final rule is effective as of the date of publication in the Federal Register . The 2020 CECL transition provision remains available under the interim final rule prior to that effective date.

Distribution:

FDIC-Supervised Institutions

Suggested Routing:

Chief Executive Officer 
Chief Financial Officer 
Chief Risk Officer

FIL-84-2020
Attachments
Risk-Based Capital Rules, 12 CFR Part 324
Last Updated: August 26, 2020