4222 Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 

1 83 FR 22312 (May 14, 2018). 

2ASU 2016–13 covers measurement of credit 

losses on financial instruments and includes three 

subtopics within Topic 326: (i) Subtopic 326–10 

Financial Instruments—Credit Losses—Overall; (ii) 

Subtopic 326–20: Financial Instruments—Credit 

Losses—Measured at Amortized Cost; and (iii) 

Subtopic 326–30: Financial Instruments—Credit 

Losses—Available-for-Sale Debt Securities. 

3Banking organizations subject to the capital rule 

include national banks, state member banks, state 

nonmember banks, savings associations, and toptier bank holding companies and savings and loan 

holding companies domiciled in the United States 

not subject to the Board’s Small Bank Holding 

Company Policy Statement (12 CFR part 225, 

Appendix C), but exclude certain savings and loan 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

12 CFR Parts 1, 3, 5, 23, 24, 32, and 46 

[Docket ID OCC–2018–0009] 

RIN 1557–AE32 

FEDERAL RESERVE SYSTEM 

12 CFR Parts 208, 211, 215, 217, 223, 

225, and 252 

[Regulation Q; Docket No. R–1605] 

RIN 7100–AF04 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Parts 324, 325, 327, 347, and 

390 

RIN 3064–AE74 

Regulatory Capital Rule: 

Implementation and Transition of the 

Current Expected Credit Losses 

Methodology for Allowances and 

Related Adjustments to the Regulatory 

Capital Rule and Conforming 

Amendments to Other Regulations 

AGENCY: Office of the Comptroller of the 

Currency, Treasury; the Board of 

Governors of the Federal Reserve 

System; and the Federal Deposit 

Insurance Corporation. 

ACTION: Final rule. 

SUMMARY: The Office of the Comptroller 

of the Currency, the Board of Governors 

of the Federal Reserve System, and the 

Federal Deposit Insurance Corporation 

(collectively, the agencies) are adopting 

a final rule to address changes to credit 

loss accounting under U.S. generally 

accepted accounting principles, 

including banking organizations’ 

implementation of the current expected 

credit losses methodology (CECL). The 

final rule provides banking 

organizations the option to phase in 

over a three-year period the day-one 

adverse effects on regulatory capital that 

may result from the adoption of the new 

accounting standard. In addition, the 

final rule revises the agencies’ 

regulatory capital rule, stress testing 

rules, and regulatory disclosure 

requirements to reflect CECL, and makes 

conforming amendments to other 

regulations that reference credit loss 

allowances. 

DATES: The final rule is effective on 

April 1, 2019. Banking organizations 

may early adopt this final rule prior to 

that date. 

FOR FURTHER INFORMATION CONTACT: 

OCC: Mark Ginsberg, Senior Risk 

Expert or JungSup Kim, Risk Specialist, 

Capital Policy Division, (202) 649–6983; 

or Kevin Korzeniewski, Counsel, Office 

of the Chief Counsel, (202) 649–5490; or 

for persons who are hearing impaired, 

TTY, (202) 649–5597. 

Board: Constance M. Horsley, Deputy 

Associate Director, (202) 452–5239; Juan 

C. Climent, Manager, (202) 872–7526; 

Andrew Willis, Senior Supervisory 

Financial Analyst, (202) 912–4323; or 

Noah Cuttler, Senior Financial Analyst, 

(202) 912–4678, Division of Supervision 

and Regulation; or Benjamin W. 

McDonough, Assistant General Counsel, 

(202) 452–2036; David W. Alexander, 

Counsel, (202) 452–2877; or Asad 

Kudiya, Counsel, (202) 475–6358, Legal 

Division, Board of Governors of the 

Federal Reserve System, 20th and C 

Streets NW, Washington, DC 20551. For 

the hearing impaired only, 

Telecommunication Device for the Deaf 

(TDD), (202) 263–4869. 

FDIC: Benedetto Bosco, Chief, 

bbosco@fdic.gov; Richard Smith, Capital 

Markets Policy Analyst, rismith@

fdic.gov; David Riley, Senior Policy 

Analyst, dariley@fdic.gov; Capital 

Markets Branch, Division of Risk 

Management Supervision, 

regulatorycapital@fdic.gov, (202) 898– 

6888; or Michael Phillips, Acting 

Supervisory Counsel, mphillips@

fdic.gov; Catherine Wood, Counsel, 

cawood@fdic.gov; Suzanne Dawley, 

Counsel, sudawley@fdic.gov; or Alec 

Bonander, Attorney, abonander@

fdic.gov; Supervision Branch, Legal 

Division, Federal Deposit Insurance 

Corporation, 550 17th Street NW, 

Washington, DC 20429. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Overview 

A. Background 

B. Changes to U.S. GAAP 

C. Regulatory Capital 

II. Summary of the Proposal 

A. Proposed Revisions to the Capital Rule 

To Reflect the Change in U.S. GAAP 

B. Summary of Comments Received on the 

Proposal 

III. Final Rule 

A. Changes to the Capital Rule To Reflect 

the Change in U.S. GAAP 

1. Introduction of Adjusted Allowances for 

Credit Losses as a New Defined Term 

2. Definition of Carrying Value 

B. CECL Transition Provision 

1. Election of the Optional CECL Transition 

Provision 

2. Mechanics of the CECL Transition 

Provision 

3. Business Combinations 

4. 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 

IV. Long Term Considerations With CECL 

V. Regulatory Analysis 

A. Paperwork Reduction Act 

B. Regulatory Flexibility Act 

C. Plain Language 

D. OCC Unfunded Mandates Reform Act of 

1995 

E. Small Business Regulatory Enforcement 

Fairness Act of 1996 (SBREFA) 

F. Administrative Procedure Act and 

Riegle Community Development and 

Regulatory Improvement Act of 1994 

I. Overview 

A. Background 

On May 14, 2018, the Office of the 

Comptroller of the Currency (OCC), the 

Board of Governors of the Federal 

Reserve System (Board), and the Federal 

Deposit Insurance Corporation (FDIC) 

(collectively, the agencies) issued a 

notice of proposed rulemaking (NPR or 

proposal) that would have revised 

certain of their regulations to account 

for forthcoming changes to credit loss 

accounting under U.S. generally 

accepted accounting principles (U.S. 

GAAP).1 In particular, the proposal 

would have amended certain of the 

agencies’ rules to address the Financial 

Accounting Standards Board’s (FASB) 

issuance of Accounting Standards 

Update No. 2016–13, Financial 

Instruments—Credit Losses, Topic 326, 

Measurement of Credit Losses on 

Financial Instruments (ASU 2016–13).2

ASU 2016–13 introduces the current 

expected credit losses methodology 

(CECL), which replaces the incurred 

loss methodology for financial assets 

measured at amortized cost; introduces 

the term purchased credit deteriorated 

(PCD) assets, which replaces the term 

purchased credit-impaired (PCI) assets; 

and modifies the treatment of credit 

losses on available-for-sale (AFS) debt 

securities. 

The proposal would have applied to 

banking organizations 3 that are subject 

Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 4223 

holding companies that are substantially engaged in 

insurance underwriting or commercial activities or 

that are estate trusts, and bank holding companies 

and savings and loan holding companies that are 

employee stock ownership plans. 

4 12 CFR part 3 (OCC); 12 CFR part 217 (Board); 

12 CFR part 324 (FDIC). 

5See 12 U.S.C. 1831n; see also Instructions for 

Preparation of Consolidated Financial Statements 

for Holding Companies, Reporting Form FR Y–9C 

(Reissued March 2013); Instructions for Preparation 

of Consolidated Reports of Condition and Income, 

Reporting Forms FFIEC 031 and FFIEC 041 

(updated September 2017); Instructions for 

Preparation of Consolidated Reports of Condition 

and Income for a Bank with Domestic Offices Only 

and Total Assets Less than $1 Billion, Reporting 

Form FFIEC 051 (updated September 2017). 

6 ‘‘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. 

7For this purpose, 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 SEC under the federal 

securities laws or, for an insured depository 

institution, the appropriate federal banking agency 

under section 12(i) of the Securities Exchange Act 

of 1934. The banking agencies named under section 

12(i) of the Securities Exchange Act of 1934 are the 

OCC, the Board, and the FDIC. 

8A PBE that is not an SEC filer would include: 

(1) An entity that has issued securities that are 

traded, listed, or quoted on an over-the-counter 

market, and (2) an entity that has issued one or 

more securities that are not subject to contractual 

restrictions on transfer and is required by law, 

contract, or regulation to prepare U.S. GAAP 

financial statements (including footnotes) and make 

them publicly available periodically (e.g., pursuant 

to Section 36 of the Federal Deposit Insurance Act 

and Part 363 of the FDIC’s rules). For further 

information on the definition of a PBE, refer to ASU 

2013–12, Definition of a Public Business Entity, 

issued in December 2013. 

to the agencies’ regulatory capital rule 4

(capital rule), to banking organizations 

that are subject to stress testing 

requirements, and to banking 

organizations that file regulatory reports 

that are uniform and consistent with 

U.S. GAAP.5 In particular, the proposal 

would have revised the agencies’ capital 

rule to distinguish which credit loss 

allowances under the new accounting 

standard would be eligible for inclusion 

in a banking organization’s regulatory 

capital. The proposal would also have 

provided banking organizations that 

experience a reduction in retained 

earnings as a result of adopting CECL 

with an option to elect a three-year 

transition period to phase in the effects 

of CECL adoption on regulatory capital. 

The proposal also would have revised 

regulatory capital disclosure 

requirements applicable to certain 

banking organizations, amended 

references to credit loss allowances in 

other regulations, and required the 

inclusion of CECL provisions in a 

banking organization’s company-run 

stress testing projections beginning with 

the 2020 stress test cycle. 

The agencies are adopting as final the 

proposal. The final rule is effective as of 

April 1, 2019, but a banking 

organization may choose to adopt the 

final rule starting as early as first quarter 

2019. 

B. Changes to U.S. GAAP 

ASU 2016–13 revises U.S. GAAP and, 

consequently, affects regulatory reports 

based on U.S. GAAP. CECL differs from 

the incurred loss methodology in 

several key respects. First, for financial 

assets measured at amortized cost, CECL 

requires banking organizations to 

recognize lifetime expected credit 

losses, not just credit losses incurred as 

of the reporting date. CECL requires the 

incorporation of reasonable and 

supportable forecasts in developing an 

estimate of lifetime expected credit 

losses, while also maintaining the 

current requirement that banking 

organizations 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. 

CECL replaces multiple impairment 

approaches in existing U.S. GAAP. 

CECL allowances will cover a broader 

range of financial assets than the 

allowance for loan and lease losses 

(ALLL) under the incurred loss 

methodology. Under the incurred loss 

methodology, ALLL generally covers 

credit losses on loans held for 

investment and lease financing 

receivables, with additional allowances 

for certain other extensions of credit and 

allowances for credit losses on certain 

off-balance sheet credit exposures (with 

the latter allowances presented as 

liabilities).6 These exposures will be 

within the scope of CECL. In addition, 

CECL applies to credit losses on heldto-maturity (HTM) debt securities. As 

previously mentioned, ASU 2016–13 

replaces the term PCI assets with the 

term PCD assets. The PCD asset 

definition covers a broader range of 

assets than the PCI asset definition. 

CECL requires banking organizations to 

estimate and record a credit loss 

allowance for a PCD asset at the time of 

purchase. This credit loss allowance is 

then added to the purchase price to 

determine the purchase date amortized 

cost basis of the asset for financial 

reporting purposes. Post-acquisition 

changes in credit loss allowances on 

PCD assets will be established through 

earnings. This is different from the 

current treatment of PCI assets, for 

which banking organizations are not 

permitted to estimate and recognize 

credit loss allowances at the time of 

purchase. Rather, banking organizations 

generally estimate credit loss 

allowances for PCI assets subsequent to 

the purchase only if there is 

deterioration in the expected cash flows 

from such assets. 

ASU 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 U.S. GAAP. AFS debt securities 

will continue to be measured at fair 

value, with changes in fair value not 

related to credit losses recognized in 

other comprehensive income. Credit 

loss allowances on an AFS debt security 

are limited to the amount by which the 

security’s fair value is less than its 

amortized cost. 

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, banking 

organizations will recognize the 

adjustment to the credit loss allowances 

with offsetting entries to deferred tax 

assets (DTAs), if appropriate, and to the 

fiscal year’s beginning retained 

earnings. 

The effective date of ASU 2016–13 

varies for different banking 

organizations. For banking organizations 

that are U.S. Securities and Exchange 

Commission (SEC) filers,7 ASU 2016–13 

will become effective for the first fiscal 

year beginning after December 15, 2019, 

including interim periods within that 

fiscal year. For banking organizations 

that are public business entities (PBE) 

but not SEC filers (as defined in U.S. 

GAAP),8 ASU 2016–13 will become 

effective for the first fiscal year 

beginning after December 15, 2020, 

including interim periods within that 

4224 Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 

9The FASB amended the effective date to the 

periods indicated for non-PBEs through an ASU 

issued November 15, 2018, ASU No. 2018–19, 

Codification Improvements to Topic 326: Financial 

Instruments—Credit Losses. ASU 2016–13 will now 

take effect for non-PBEs for fiscal years beginning 

after December 15, 2021, including interim periods 

within those fiscal years. Thus, a non-PBE with a 

calendar year fiscal year must adopt ASU 2016–13 

as of January 1, 2022, if the entity does not elect 

to early adopt prior to January 1, 2022, and would 

first report in accordance with the credit losses 

standard in its regulatory reports and any financial 

statements for March 31, 2022. 

10However, 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. 

11 Deferred tax assets are a result of deductible 

temporary differences and carryforwards which 

may result in a decrease in taxes payable in future 

years. 

12See 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 

12 CFR 324.2 (FDIC). Any amount of ALLL greater 

than the 1.25 percent limit is deducted from 

standardized total risk-weighted assets. 12 CFR 

3.20(d)(3) (OCC); 12 CFR 217.20(d)(3) (Board); 12 

CFR 324.20(d)(3) (FDIC). 

13A banking organization is an advanced 

approaches banking organization if it has 

consolidated assets of at least $250 billion or if it 

has consolidated on-balance sheet foreign 

exposures of at least $10 billion, or if it is a 

subsidiary of a depository institution, bank holding 

company, savings and loan holding company, or 

intermediate holding company that is an advanced 

approaches banking organization. See 12 CFR 3.100 

(OCC); 12 CFR 217.100 (Board); 12 CFR 324.100 

(FDIC). On October 31, 2018, the OCC and the 

Board issued a notice of proposed rulemaking that 

would modify the definition of an advanced 

approaches banking organization. On November 20, 

2018, the FDIC issued a substantively identical 

notice of proposed rulemaking. 

14An 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 rule. See 12 CFR 3.121(d) (OCC); 12 CFR 

217.121(d) (Board); 12 CFR 324.121(d) (FDIC). 

15 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). 

16Note 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 

U.S. GAAP. See 12 U.S.C. 1831n(a)(2)(A). 

Consistency in reporting under the statute would be 

addressed by the agencies’ proposed CECL revisions 

to the Call Report pursuant to the Paperwork 

Reduction Act. See 83 FR 49160 (September 28, 

2018). 

fiscal year. For banking organizations 

that are not PBEs (as defined in U.S. 

GAAP), ASU 2016–13 will become 

effective for the first fiscal year 

beginning after December 15, 2021, 

including interim periods within those 

fiscal years.9 A banking organization 

that chooses to adopt ASU 2016–13 

early may do so in a fiscal year 

beginning after December 15, 2018, 

including interim periods within that 

fiscal year. The following table provides 

a summary of the effective dates. 

CECL EFFECTIVE DATES

U.S. GAAP effective date Regulatory report 

effective date * 

PBEs that are SEC Filers ............... Fiscal years beginning after 12/15/2019, including interim periods 

within those fiscal years.

3/31/2020. 

Other PBEs (Non-SEC Filers) ........ Fiscal years beginning after 12/15/2020, including interim periods 

within those fiscal years.

3/31/2021. 

Non-PBEs ........................................ Fiscal years beginning after 12/15/2021, including interim periods 

within those fiscal years.

3/31/2022. 

Early Adoption ................................. Early adoption permitted for fiscal years beginning after 12/15/2018, 

including interim periods within those fiscal years.

3/31 of year of effective date of 

early adoption of ASU 2016–13. 

* For institutions with calendar year-ends. 

C. Regulatory Capital 

A banking organization’s 

implementation of CECL will likely 

affect its retained earnings, DTAs, and 

allowances and, as a result, its 

regulatory capital ratios. 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.10 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.11 Under 

the capital rule’s standardized approach 

for risk-weighted assets (standardized 

approach), ALLL is included in a 

banking organization’s tier 2 capital up 

to 1.25 percent of its standardized total 

risk-weighted assets (excluding 

standardized market risk-weighted 

assets, if applicable), as those terms are 

defined in the rule.12 An advanced 

approaches banking organization 13 that 

has completed the parallel run 

process 14 includes in its advancedapproaches-adjusted total capital any 

eligible credit reserves that exceed the 

banking organization’s total expected 

credit losses, as defined in the capital 

rule, to the extent that the excess reserve 

amount does not exceed 0.6 percent of 

the banking organization’s credit riskweighted assets.15

II. Summary of the Proposal 

A. Proposed Revisions to the Capital 

Rule To Reflect the Change in U.S. 

GAAP 

The agencies proposed to amend the 

capital rule to identify which credit loss 

allowances under the new accounting 

standard would be eligible for inclusion 

in a banking organization’s regulatory 

capital.16 In particular, the proposal 

would have added allowance for credit 

losses (ACL) as a newly defined term in 

the capital rule. As proposed, ACL 

would have included credit loss 

allowances related to financial assets 

measured at amortized cost, except for 

allowances for PCD assets. ACL would 

have been eligible for inclusion in a 

banking organization’s tier 2 capital 

subject to the current limit for including 

ALLL in tier 2 capital under the capital 

rule’s standardized approach. 

Further, the agencies proposed to 

revise the capital rule, 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 the proposal. The 

proposal would have retained the 

current limit for eligible credit reserves 

in tier 2 capital. The proposal also 

would have provided a separate capital 

treatment for allowances associated 

with AFS debt securities and PCD assets 

that would have applied to all banking 

organizations upon adoption of ASU 

2016–13. 

Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 4225 

17For the agencies’ proposed revisions to 

regulatory reports to address the revised accounting 

for credit losses under ASU 2016–13, including 

CECL, see 83 FR 49160 (September 28, 2018). 

18For certain banking organizations, sections 63 

and 173 of the capital rule requires disclosure of 

items such as capital structure, capital adequacy, 

credit risk, and credit risk mitigation. 

Before the agencies issued the 

proposal, some banking organizations 

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 capital planning, uncertainty 

about the economic environment at the 

time of CECL adoption could result in 

higher-than-anticipated increases in 

credit loss allowances. To address these 

concerns, the agencies proposed 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. 

The proposal also would have revised 

regulatory capital disclosure 

requirements 17 that would have applied 

to certain banking organizations 

following their adoption of CECL.18 The 

proposal would have provided 

conforming amendments to the 

agencies’ other regulations that refer to 

credit loss allowances to reflect the 

implementation of ASU 2016–13. In 

particular, the proposal would have 

amended the Board’s and FDIC’s 

company-run stress testing rules to 

require a banking organization that has 

adopted CECL to include its CECL 

provisions as part of its stress testing 

projections beginning with the 2020 

stress test cycle. 

Finally, the proposal would not have 

changed the limit of 1.25 percent of riskweighted assets governing the amount of 

allowances eligible for inclusion in tier 

2 capital. The agencies stated in the 

proposal that they would intend to 

monitor the effects of this limit on 

regulatory capital and bank lending 

practices. This ongoing monitoring 

would have included the review of data, 

including data provided by banking 

organizations, and would have assisted 

the agencies in determining whether 

any further change to the capital rule’s 

treatment of ACL might be warranted in 

the future. 

B. Summary of Comments Received on 

the Proposal 

The agencies received 25 comment 

letters from banking organizations, trade 

associations, public interest groups, and 

individuals. Most commenters 

supported the agencies’ proposal to 

provide an option to elect temporary 

regulatory capital relief as banking 

organizations adopt CECL. Most 

commenters also requested further 

additional measures for addressing 

CECL’s effect on regulatory capital. 

Many commenters supported the 

agencies’ proposal to provide a threeyear transition provision to phase-in 

CECL’s day-one effect on a banking 

organization’s regulatory capital ratios, 

with most of these commenters favoring 

a longer five-year transition period. 

Some commenters offered targeted 

recommendations regarding 

implementation of a transition provision 

that would phase in CECL’s effect in 

periods after CECL’s day-one 

implementation. Several commenters 

requested that, instead of a transition 

provision, the agencies should provide 

a temporary neutralization adjustment 

of CET1 capital while further 

consideration of the effect of CECL is 

undertaken. Many of these and other 

commenters asserted that any 

transitional provision would be 

inadequate and preferred neutralizing 

the effect of CECL on regulatory capital 

ratios by either adjusting the CET1 

capital calculation or revising the 

overall capital requirements. 

One commenter requested that the 

agencies expand the scope of credit loss 

allowances eligible for inclusion in a 

banking organization’s tier 2 capital to 

permit banking organizations to include 

post-acquisition allowances for PCD 

assets when PCD assets exceed a 

materiality threshold. Some commenters 

requested that the agencies increase or 

remove the current limit on allowances 

includable in tier 2 capital. Several 

commenters raised concerns with the 

proposed schedule for incorporation of 

CECL provisions into the stress testing 

cycle. One commenter requested that 

CECL’s implementation in the stress 

testing cycle align with the proposal’s 

three-year transition provision to allow 

time for industry standard practices to 

converge. Other commenters raised 

concerns and requested guidance in 

connection with how CECL interacts 

with regulatory capital and stress 

testing. Many of these commenters 

requested that the agencies undertake 

additional ‘‘cost-benefit’’ and impact 

studies to assess CECL’s effect on the 

regulatory capital of banking 

organizations of various sizes and under 

varying economic conditions over time. 

Numerous commenters urged the 

agencies to delay CECL’s 

implementation until additional impact 

studies have been completed, and to 

intervene on commenters’ behalf with 

the FASB to revise the accounting 

treatment of credit losses. 

III. Final Rule 

A. Changes to the Capital Rule To 

Reflect the Change in U.S. GAAP 

1. Introduction of Adjusted Allowances 

for Credit Losses as a New Defined Term 

The agencies are adopting as final the 

proposal for the credit loss allowances 

that would have been eligible for 

inclusion in tier 2 capital, with one nonsubstantive change from the proposal 

with respect to terminology. The final 

rule includes a new term, adjusted 

allowances for credit losses (AACL), 

which replaces the term ACL, as used in 

the proposal. The agencies believe that 

the term AACL for regulatory capital 

purposes minimizes confusion, as its 

meaning is different from the term ACL 

used in applicable accounting 

standards. The term allowance for credit 

losses as used by the FASB in ASU 

2016–13 applies to both financial assets 

and AFS debt securities. In contrast, the 

term ACL as used in the proposal for 

regulatory capital purposes excludes 

credit loss allowances on PCD assets 

and AFS debt securities. Consistent 

with the proposal and as described in 

the following sections, the AACL 

definition includes only those 

allowances that have been charged 

against earnings or retained earnings. 

Under the final rule, the term AACL, 

rather than ALLL, will apply to a 

banking organization that has adopted 

CECL. Consistent with the treatment of 

ALLL under the capital rule’s 

standardized approach, amounts of 

AACL are eligible for inclusion in a 

banking organization’s tier 2 capital up 

to 1.25 percent of the banking 

organization’s standardized total riskweighted assets (excluding its 

standardized market risk-weighted 

assets, if applicable). 

AACL covers a broader range of 

financial assets than ALLL under the 

incurred loss methodology. Under the 

standardized approach of the capital 

rule, 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 U.S. GAAP. Under 

CECL, credit loss allowances represent 

an accounting valuation account, 

measured as the difference between the 

financial assets’ amortized cost basis 

4226 Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 

and the amount expected to be collected 

on the financial assets (i.e., lifetime 

credit losses). Thus, AACL includes 

allowances for expected credit losses on 

HTM debt securities and lessors’ net 

investments in leases that have been 

established to adjust these assets to 

amounts expected to be collected, as 

determined in accordance with U.S. 

GAAP. AACL also includes allowances 

for expected credit losses on off-balance 

sheet credit exposures not accounted for 

as insurance, as determined in 

accordance with U.S. GAAP. As 

described below, however, credit loss 

allowances related to AFS debt 

securities and PCD assets are not 

included in the definition of AACL. As 

with the definition of ALLL, AACL 

under the final rule also excludes 

allocated transfer risk reserves. 

2. Definition of Carrying Value 

The agencies are adopting as final, 

without change from the proposal, the 

definition of carrying value. Under the 

final rule, carrying value means, with 

respect to an asset, the value of the asset 

on the balance sheet as determined in 

accordance with U.S. GAAP. 

Furthermore, carrying value under the 

final rule provides that, for all assets 

other than AFS debt securities and PCD 

assets, the carrying value is not reduced 

by any associated credit loss allowance. 

The agencies did not receive comments 

on the proposed treatment of AFS debt 

securities and, as discussed below, 

received one comment on the proposed 

treatment of PCD assets. 

Current accounting standards require 

a banking organization to make an 

individual assessment of each of its AFS 

debt securities and take a direct writedown for credit losses when such a 

security is other-than-temporarily 

impaired. The amount of the writedown is charged against earnings, which 

reduces CET1 capital and results in a 

reduction in the same amount to the 

carrying value of the AFS debt security. 

ASU 2016–13 revises the accounting for 

credit impairment of AFS debt 

securities by requiring 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-thantemporary impairment, under the final 

rule all credit losses recognized on AFS 

debt securities will correspondingly 

affect CET1 capital and reduce the 

carrying value of the AFS debt security. 

Since the carrying value of an AFS debt 

security is its fair value, which would 

reflect any credit impairment, credit 

loss allowances for AFS debt securities 

required under the new accounting 

standard are not eligible for inclusion in 

a banking organization’s tier 2 capital. 

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. Including 

in tier 2 capital allowances that have not 

been charged against earnings would 

diminish the quality of regulatory 

capital. Post-acquisition increases in 

allowances for PCD assets will be 

established through a charge against 

earnings. 

Accordingly, the agencies are 

maintaining the requirement that 

valuation allowances be fully 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 

U.S. GAAP (i.e., the allowances required 

at CECL adoption) are eligible for 

inclusion in tier 2 capital. The final 

rule, however, excludes PCD allowances 

from being included in tier 2 capital; 

rather, a banking organization calculates 

the carrying value of PCD assets net of 

allowances. This treatment of PCD 

assets, in effect, will reduce a banking 

organization’s standardized total riskweighted assets, similar to the proposed 

treatment for credit loss allowances for 

AFS debt securities. One commenter 

recommended that the agencies require 

or provide an option to allow banking 

organizations to use a bifurcated 

approach for the treatment of PCD assets 

whereby a banking organization could 

include post-acquisition allowances on 

PCD assets in tier 2 capital when the 

banking organization’s PCD balances 

exceed a materiality threshold. The 

commenter was concerned that the 

proposed approach could discourage 

banking organizations from acquiring 

distressed firms if the post-acquisition 

allowance were not includable in 

regulatory capital. As noted in the 

proposal, the agencies are concerned 

that a bifurcated approach could create 

undue complexity and burden for 

banking organizations and believe that 

requiring banking organizations to 

calculate the carrying value of PCD 

assets net of allowances appropriately 

accounts for post-acquisition allowances 

in the calculation of regulatory capital. 

B. CECL Transition Provision 

In the preamble of the proposal, the 

agencies noted that 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 banking organizations 

will not understand these conditions 

until closer to their 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 higherthan-anticipated increases in 

allowances. To address these concerns, 

the agencies proposed to provide 

banking organizations with the option to 

phase in over a three-year period the 

day-one adverse effects of CECL on their 

regulatory capital ratios. 

Several commenters requested that 

the agencies extend the transition 

period from three years to five years or 

longer. In particular, commenters noted 

that effects of CECL on bank capital in 

the aggregate and for individual banks 

cannot be precisely estimated prior to 

actual adoption of CECL. Some 

commenters noted that a five-year 

transition would help to soften any 

adverse effects due to unresolved 

interpretive issues with respect to CECL 

implementation. According to one 

commenter, a five-year transition period 

would allow a bank to transition 

through the vast majority of the 

expected life of its loan portfolio. One 

commenter argued that a three-year 

transition period might not be sufficient 

for firms that enter a stress environment 

at the time of CECL implementation. 

One commenter supported the proposed 

three-year transition period. 

A few commenters asked the agencies 

to adopt a dynamic transition provision, 

whereby a banking organization could 

calculate and phase-in additional 

capital differences between CECL and 

the current incurred loss methodology 

(or a proxy for the incurred loss 

methodology) for any new credit loss 

allowances generated throughout the 

entire transition period, rather than just 

at initial adoption of CECL. Several 

Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 4227 

commenters requested that the agencies 

delay the implementation of CECL or 

neutralize the impact of CECL on 

regulatory capital until further study of 

the effect of CECL has been completed. 

The agencies note that ASU 2016–13 

was issued in 2016 and becomes 

mandatory in 2020 at the earliest for 

banking organizations that are U.S. SEC 

filers, which provides banking 

organizations with at least a four year 

period to plan for CECL 

implementation. Most banking 

organizations are not required to adopt 

CECL until 2021 or 2022, according to 

the U.S. GAAP effective dates for ASU 

2016–13. 

While the exact effects of CECL 

adoption may not be known currently, 

a banking organization will be able to 

better understand and estimate 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 

recognize that these estimates may 

change, and the three-year transition 

period may help mitigate capital 

volatility due to refinements in CECL 

allowance estimates that may be made 

as a banking organization approaches its 

CECL adoption date. 

The agencies continue to view the 

period of at least four years that banking 

organizations will have had to plan for 

the implementation of 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. Further, the 

agencies considered adopting a dynamic 

or ongoing transition approach, but 

believe, that relative to the straight-line 

approach, it would create unnecessary 

complexity and operational burden. 

Therefore, the agencies are finalizing the 

three-year transition period as proposed. 

As previously stated, many 

commenters requested that the agencies 

take action to ‘‘neutralize’’ the effect of 

CECL on regulatory capital on a more 

permanent basis. The agencies 

acknowledge that because changes in 

allowances may reduce retained 

earnings, which is a key component of 

CET1 capital, CECL implementation 

could affect regulatory capital levels at 

some banking organizations. In defining 

regulatory capital, the agencies have 

long sought to recognize the ability of 

capital to absorb losses and to support 

the ongoing operations of a banking 

organization. The agencies recognize 

commenters’ concerns with CECL and 

intend to closely monitor the effects of 

CECL on regulatory capital and bank 

lending practices as the standard is 

implemented. 

1. Election of the Optional CECL 

Transition Provision 

Under the final rule, a banking 

organization that experiences a 

reduction in retained earnings due to 

CECL adoption as of the beginning of 

the fiscal year in which the banking 

organization adopts CECL 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 is required to begin 

applying the CECL transition provision 

as of the electing banking organization’s 

CECL adoption date. An electing 

banking organization must indicate in 

its Consolidated Reports of Condition 

and Income (Call Report) or Form FR 

Y–9C, as applicable, its election to use 

the CECL transition provision, by 

reporting the amounts in the affected 

line items of the regulatory capital 

schedule, adjusted for the transition 

provisions, beginning in the regulatory 

report for the quarter in which it first 

reports its credit loss allowances as 

measured under CECL. For example, an 

electing banking organization would 

adjust the amount of retained earnings 

it reports in Schedule RC–R of the Call 

Report or Schedule HC–R of the Form 

FR Y–9C to incorporate the transition 

provision. 

A banking organization that does not 

elect to use the CECL transition 

provision in the regulatory report for the 

quarter in which it first reports its credit 

loss allowances as measured under 

CECL will not be permitted to make an 

election in subsequent reporting periods 

and will be required to reflect the full 

effect of CECL in its regulatory capital 

ratios beginning as of the banking 

organization’s CECL adoption date. For 

example, a banking organization that 

adopts CECL as of January 1, 2020, and 

does not elect to use the CECL transition 

provision in its regulatory report as of 

March 31, 2020, must include the full 

effects of CECL adoption in its 

regulatory capital schedule as of March 

31, 2020, and will not be permitted to 

use the CECL transition provision in any 

subsequent reporting period. 

A banking organization that initially 

elects to use the CECL transition 

provision in the final rule, but opts out 

of the transition provision in a 

subsequent reporting period, will not be 

permitted to resume using the transition 

provision at a later date within the 

three-year transition period. A banking 

organization may opt out of applying 

the transition provision by reflecting the 

full impact of CECL on regulatory 

capital in Schedule RC–R of the Call 

Report or Schedule HC–R of Form FR 

Y–9C, as applicable. 

A depository institution holding 

company subject to the Board’s capital 

rule and each of its subsidiary 

institutions is eligible to make a CECL 

transition provision election 

independent of one another. 

2. Mechanics of the CECL Transition 

Provision 

Under the final rule, an electing 

banking organization must calculate 

transitional amounts for the following 

items: Retained earnings, temporary 

difference DTAs, and credit loss 

allowances eligible for inclusion in 

regulatory capital. For each of these 

items, the transitional amount is equal 

to the difference between the electing 

banking organization’s 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 it 

adopts CECL (post-CECL amount). An 

electing banking organization must 

phase in the transitional amounts to its 

regulatory capital calculations over a 

three-year period beginning the first day 

of the fiscal year in which the electing 

banking organization adopts CECL. 

An electing banking organization’s 

‘‘CECL transitional amount’’ is equal to 

the difference between its pre-CECL and 

post-CECL amounts of retained earnings 

(CECL transitional amount). An electing 

banking organization’s ‘‘DTA 

transitional amount’’ is equal to the 

difference between its pre-CECL and 

post-CECL amounts of temporary 

difference DTAs. An electing banking 

organization’s AACL transitional 

amount is equal to the difference 

between its pre-CECL amount of ALLL 

and its post-CECL amount of AACL 

(AACL transitional amount). 

Under the standardized approach, an 

electing banking organization must 

phase in over the three-year transition 

period its CECL transitional amount, 

DTA transitional amount, and AACL 

transitional amount. The electing 

banking organization also must phase in 

over the transition period the CECL 

transitional amount to its average total 

consolidated assets for purposes of 

calculating its tier 1 leverage ratio. Each 

transitional amount must be phased in 

over the transition period on a straightline basis. 

When calculating regulatory capital 

ratios during the first year of an electing 

banking organization’s CECL adoption 

date, the organization must phase in 25 

percent of the transitional amounts. The 

electing banking organization would 

4228 Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 

19 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). 

phase in an additional 25 percent of the 

transitional amounts over each of the 

next two years so that a banking 

organization would have phased in 75 

percent of the day-one adverse effects of 

adopting CECL during year three. At the 

beginning of the fourth year, the 

banking organization would have 

completely reflected in regulatory 

capital the day-one effects of CECL. See 

Table 1 below for further details: 

TABLE 1—CECL TRANSITION AMOUNTS TO APPLY TO REGULATORY CAPITAL COMPONENTS

Year 1 Year 2 Year 3 

Increase retained earnings and average total consolidated assets by the following percentages of the CECL transitional amount ..................................................................................... 75% 50% 25% 

Decrease temporary difference DTAs by the following percentages of the DTA transitional 

amount. 

Decrease AACL by the following percentages of the AACL transitional amount. 

For example, consider a hypothetical 

electing banking organization that has a 

CECL effective date of January 1, 2020, 

and a 21 percent tax rate. On the closing 

balance sheet date immediately prior to 

adopting CECL (i.e., December 31, 

2019), the electing banking organization 

has $10 million in retained earnings and 

$1 million of ALLL. On the opening 

balance sheet date immediately after 

adopting CECL (i.e., January 1, 2020), 

the electing banking organization has 

$1.2 million of AACL. The electing 

banking organization would recognize 

the adoption of CECL by recording an 

increase to AACL (credit) of $200,000, 

with an offsetting increase in temporary 

difference DTAs of $42,000 (debit), and 

a reduction in beginning retained 

earnings of $158,000 (debit). For each of 

the quarterly reporting periods in year 1 

of the transition period (i.e., 2020), the 

electing banking organization would 

increase both retained earnings and 

average total consolidated assets by 

$118,500 ($158,000 × 75 percent), 

decrease temporary difference DTAs by 

$31,500 ($42,000 × 75 percent), and 

decrease AACL by $150,000 ($200,000 × 

75 percent) for purposes of calculating 

its regulatory capital ratios. The 

remainder of the transitional amounts 

will be transitioned into regulatory 

capital according to the schedule 

provided in Table 2. 

TABLE 2—EXAMPLE OF A CECL TRANSITION PROVISION SCHEDULE

In thousands 

Transitional 

amounts 

Transitional amounts applicable during each 

year of the transition period 

Column A 

Column B Column C Column D 

Year 1 at 75% Year 2 at 50% Year 3 at 25% 

Increase retained earnings and average total consolidated assets by the 

CECL transitional amount ............................................................................ $158 $118.50 $79 $39.50 

Decrease temporary difference DTAs by the DTA transitional amount .......... 42 31.50 21 10.50 

Decrease AACL by the ACL transitional amount ............................................ 200 150 100 50 

The result of the CECL transition 

provision for an electing banking 

organization is 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 will 

mitigate the decrease in an electing 

banking organization’s CET1 capital 

resulting from CECL adoption, and 

would increase the levels at which the 

capital rule’s CET1 capital deduction 

thresholds would be triggered. The DTA 

transitional amount phases 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 AACL 

transitional amount phases in the 

amount of AACL that an electing 

banking organization may include in its 

tier 2 capital up to the limit of 1.25 

percent of its standardized total riskweighted 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 offsets the 

immediate decrease that would 

otherwise occur as a result of the 

adjustments to credit loss allowances 

and temporary difference DTAs 

resulting from the adoption of CECL. 

Notwithstanding the CECL transition 

provision, all other aspects of the capital 

rule will continue to apply. Thus, all 

regulatory capital adjustments and 

deductions will continue to apply and 

an electing banking organization will 

continue to be limited in the amount of 

credit loss allowances that it could 

include in its tier 2 capital.19

3. Business Combinations 

Under the proposal, during the period 

in which an electing banking 

organization is using the CECL 

transition provision, if the electing 

banking organization acquired another 

banking organization through a business 

combination (as determined under U.S. 

GAAP), the electing banking 

organization would have been able to 

continue to make use of its transitional 

amounts based on its calculation as of 

the date of its adoption of CECL. 

Business combinations would have 

covered mergers, acquisitions, and 

transactions in which two existing 

unrelated entities combine into a newly 

created third entity. 

One commenter requested that the 

agencies allow transitional amounts of 

an acquired electing banking 

organization to flow through to the 

resulting banking organization. The 

agencies do not believe that such a 

treatment is appropriate, as any assets 

acquired and liabilities assumed will be 

Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 4229 

20For combinations of banking organizations 

under common control the transitional amounts of 

each banking organization could be combined in 

the calculation of the regulatory capital ratios of the 

resulting banking organization. 

21See footnote 13. 

22 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). 

23See 12 CFR 3.121(d) (OCC); 12 CFR 217.121(d) 

(Board); and 12 CFR 324.121(d) (FDIC). 

24For 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 in AACL (credit) of 

$200,000, with an offsetting increase in temporary 

difference DTAs of $42,000 (debit), and a reduction 

in beginning retained earnings of $158,000 (debit), 

then that banking organization would have a CECL 

transitional amount of $116,000 

($158,000¥$42,000), and would apply $87,000 in 

year 1, $58,000 in year 2, $29,000 in year 3 of the 

transition period. 

measured at fair value as of the 

acquisition date under U.S. GAAP, and 

therefore the capital relief is no longer 

relevant for the acquired banking 

organizations. Thus, under the final 

rule, any transitional amounts of an 

acquired electing banking organization 

will not be eligible for inclusion in the 

calculation of the regulatory capital 

ratios of the resulting banking 

organization.20

4. 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 will use the 

electing banking organization’s 

regulatory capital ratios as adjusted by 

the CECL transition provision. Through 

the supervisory process, the agencies 

will 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 

examine whether electing banking 

organizations will have adequate 

amounts of capital at the expiration of 

their CECL transition provision period. 

C. Additional Requirements for 

Advanced Approaches Banking 

Organizations 

Under the capital rule, an advanced 

approaches banking organization 21 that 

has completed the parallel run process 

must include in its advancedapproaches-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.22 Consistent 

with the proposal, the agencies are 

revising the definition of eligible credit 

reserves to align with the definition of 

AACL in the final rule. Under the final 

rule, for an advanced approaches 

banking organization that has completed 

the parallel run process and that has 

adopted CECL, eligible credit reserves 

includes 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 AACL 

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 

excludes allocated transfer risk reserves 

established pursuant to 12 U.S.C. 3904. 

In addition, the revised eligible credit 

reserves definition excludes expected 

credit losses on PCD assets and 

expected credit losses on AFS debt 

securities, and other specific reserves 

created against recognized losses. The 

definition of eligible credit reserves 

remains unchanged for an advanced 

approaches banking organization that 

has not adopted CECL. 

For purposes of the supplementary 

leverage ratio (SLR), which is applicable 

to all advanced approaches banking 

organizations, the final rule maintains 

the current definition of total leverage 

exposure. Thus, total leverage exposure 

continues to include, among other 

items, the balance sheet carrying value 

of such a banking organization’s onbalance sheet assets less amounts 

deducted from tier 1 capital. 

TABLE 3—CECL TRANSITION AMOUNTS FOR ADVANCED APPROACHES BANKING ORGANIZATIONS

Year 1 Year 2 Year 3 

Increase total leverage exposure for SLR by the following percentages of the CECL transitional amount ............................................................................................................................ 75% 50% 25% 

Decrease eligible credit reserves by the following percentages of the eligible credit reserves 

transitional amount. 

An advanced approaches banking 

organization that has completed the 

parallel run process is required to 

deduct the amount of expected credit 

losses that exceeds its eligible credit 

reserves (ECR shortfall) from its CET1 

capital. 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.23 This is because, for a 

banking organization with an ECR 

shortfall, an increase in allowances 

resulting from CECL adoption can have 

a dual impact on CET1 capital: (1) A 

reduction in retained earnings (partially 

offset by DTAs) that may be less than (2) 

a concurrent reduction in the ECR 

shortfall amount because while the 

CET1 capital reduction is net of DTAs, 

the reduction in ECR shortfall is not net 

of DTAs. The agencies were concerned 

that the use of the CECL transition 

provision could provide an undue 

benefit to a banking organization that 

has 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. 

The agencies received one comment that 

supported this aspect of the proposal, 

for the stated reasons above. The final 

rule, therefore, limits the CECL 

transitional amount that such an 

electing advanced approaches banking 

organization can include in retained 

earnings. 

Under the final rule and consistent 

with the 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, is 

required to decrease its CECL 

transitional amount by its DTA 

transitional amount.24

4230 Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 

25 83 FR 49160 (September 28, 2018). 

26On November 20, 2018, the agencies issued a 

notice of proposed rulemaking to implement 

Section 201 of the Economic Growth, Regulatory 

Relief, and Consumer Protection Act. Under the 

proposal, depository institutions and depository 

institution holding companies that have less than 

$10 billion in total consolidated assets, meet riskbased qualifying criteria, and have a community 

bank leverage ratio (as defined in the proposal) of 

greater than 9 percent would be eligible to opt into 

a community bank leverage ratio (CBLR) 

framework. Banking organizations that use the 

CBLR framework would no longer be required to 

complete the current Schedule RC–R of the Call 

Report or Schedule HC–R of the FR Y–9C, as 

applicable. The agencies anticipate issuing for 

public comment a proposed alternative capital 

reporting schedule for such banking organizations. 

27 12 CFR 3.173 (OCC); 12 CFR 217.173 (Board); 

12 CFR 324.173 (FDIC). 28See 12 CFR part 252, subparts B, E, and F. 

D. Disclosures and Regulatory Reporting 

One commenter urged the agencies to 

consider requiring banking 

organizations to disclose the full effect 

of CECL. The agencies recognize that 

increased disclosures help to provide 

users of financial reports with 

additional information, but doing so can 

increase burden for banking 

organizations. The agencies have 

proposed revisions to certain regulatory 

reporting forms to reflect the changes in 

U.S. GAAP provided by ASU 2016–13 

in a separate proposal.25 The proposed 

revisions would specify how electing 

banking organizations report their 

transitional amounts for the affected 

line items in Schedule RC–R of the Call 

Report and Schedule HC–R of the FR Y– 

9C.26 In addition, the agencies intend to 

update instructions for certain other 

reporting forms, including the FFIEC 

101, to reflect the three-year CECL 

transition period. 

In addition, under the final rule, 

banking organizations subject to the 

disclosure requirements in section 63 of 

the capital rule (i.e., banking 

organizations with total consolidated 

assets of $50 billion or more) would be 

required to update their disclosures to 

reflect the adoption of CECL. Such 

banking organizations would be 

required to disclose AACL instead of 

ALLL after CECL adoption. 

For advanced approaches banking 

organizations, the final rule makes 

similar revisions to Tables 2, 3, and 5 

in section 173 27 of the capital rule to 

reflect the adoption of CECL. In 

addition, the final rule revises those 

tables requiring 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. 

E. Conforming Changes to Other Agency 

Regulations 

1. OCC Regulations 

In addition to the capital rule, 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 has revised the calculations 

used in six of those sections that 

currently reference ALLL to reference 

AACL, once a banking organization has 

adopted the FASB standard. The 

revisions ensure that banking 

organizations will not experience a 

material decrease in any of the affected 

limits due to the adoption of CECL. 

With respect to limits on improvements 

to other real estate owned in 12 CFR 

part 34, subpart E, the OCC is 

withdrawing the proposed revision in 

anticipation of making comprehensive 

revisions to that subpart in the near 

future. 

The OCC also made conforming edits 

to the terminology used in the stress 

testing regulation at 12 CFR part 46 to 

incorporate the new CECL methodology. 

Some commenters requested that the 

OCC mirror the Board and FDIC in 

adopting detailed CECL-specific 

provisions and effective dates in part 46. 

The OCC currently addresses these 

details through instructions to the stress 

tests and will continue to do so through 

amending the instructions instead of 

through rulemaking. 

2. Board Regulations 

Certain Board regulations reflect the 

current practice of banking 

organizations establishing an ALLL 

under the incurred loss methodology to 

cover estimated credit losses on loans, 

lease financing receivables, or other 

extensions of credit. As discussed 

above, banking organizations that adopt 

CECL will hold AACL to cover expected 

credit losses on a broader array of 

financial assets than covered by the 

ALLL. As a result, the final rule makes 

conforming changes to those other 

regulations. 

Specifically, the final rule amends 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 AACL. Similarly, the final rule 

incorporates ‘‘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 will be made to the definition of 

unimpaired capital and unimpaired 

surplus in the Board’s Regulation O, 12 

CFR part 215. 

The final rule makes a similar change 

to the Board’s Regulation K relating to 

the establishment of allocated transfer 

risk reserve (ATRR). Specifically, the 

final rule replaces, for CECL adopters, 

all references to ALLL, in the section 

relating to the accounting treatment of 

ATRR, with AACL. 

The final rule incorporates technical 

amendments to section 225.127 of the 

Board’s Regulation Y to provide 

corrected reference citations to sections 

of Regulation Y that have been revised 

and renumbered. 

Finally, the final rule amends the 

supervisory stress testing and companyrun stress testing rules in the Board’s 

Regulation YY, 12 CFR part 252, to 

address the changes made in U.S. GAAP 

following the issuance of ASU 2016– 

13.28 Several commenters requested that 

the Board delay incorporation of CECL 

into the Comprehensive Capital 

Analysis and Review (CCAR) given 

CECL’s operational and governance 

challenges. In particular, some 

commenters requested a delay for 

incorporating CECL until the 2021 stress 

testing cycle, while one commenter 

requested a delay until the year 

following a banking organization’s 

adoption of CECL and another 

commenter requested a delay until an 

industry standard practice regarding 

incorporating CECL into CCAR emerges. 

One commenter requested that the 

Board phase in CECL into CCAR over 

three years, consistent with the 

proposed transition provision. 

The Board notes that the proposal did 

not address the incorporation of CECL 

into CCAR and instead addressed the 

incorporation of CECL into the Board’s 

stress testing rules. As a result, the 

Board is addressing the comments in the 

context of incorporation of CECL in its 

stress testing rules. While CCAR and the 

capital plan rule are outside of the scope 

of this rulemaking, the Board is 

carefully considering the effect of CECL 

on key aspects of CCAR, including its 

assessment of a firm’s post-stress capital 

Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 4231 

adequacy and its supervision of a firm’s 

internal capital planning practices. The 

Board will look to provide more 

information on the intersection of CECL 

and CCAR. 

The Board acknowledges that 

incorporating CECL on a forwardlooking basis in the Board’s supervisory 

stress testing and company-run stress 

testing rules involves additional 

challenges apart from those involved in 

financial reporting. However, in order to 

address the purpose of the stress testing 

rules—to assess whether banking 

organizations have sufficient capital to 

absorb losses as a result of adverse 

economic conditions—the Board 

expects that banking organizations 

implementing CECL for financial 

reporting will also reflect CECL in their 

stress testing processes starting in the 

same year. Otherwise, stress test 

projections may not reflect how the 

banking organizations’ balance sheets 

and regulatory capital ratios would 

evolve during stressful conditions. The 

Board also believes an extended phasein of CECL into the stress test rules 

would introduce undue complexity in 

the requirements. Such a transition 

would require estimating regulatory 

capital ratios under both the incurred 

loss method and CECL for three annual 

stress testing exercises. 

For these reasons, the Board is 

finalizing the initial application of CECL 

in stress testing as proposed. As such, 

under the final rule, a banking 

organization that has adopted CECL will 

be required to include its provision for 

credit losses beginning in the 2020 

stress test cycle, which would include 

provisions calculated under ASU 2016– 

13, instead of its provision for loan and 

lease losses, in its stress testing 

methodologies and data and information 

required to be submitted to the Board 

and that the disclosure of the results of 

those stress tests includes estimates of 

those provisions. To promote 

comparability of stress test results 

across firms, for the 2018 and 2019 

stress test cycles, a banking organization 

will continue to use its provision for 

loan and lease losses, as would be 

calculated under the incurred loss 

methodology, even if the firm adopts 

CECL in 2019. Finally, under the final 

rule, a banking organization that does 

not adopt CECL until 2021 will not be 

required to include its provision for 

credit losses for these purposes until the 

2021 stress test cycle. The following 

table describes the stress test cycles in 

which a banking organization will be 

required to use its provision for credit 

losses instead of the provision for loan 

and lease losses, based on the varying 

dates of adoption of ASU 2016–13. 

TABLE 4—SUMMARY OF USE OF PROVISIONS IN 2019–2021 STRESS TEST CYCLES

Year of adoption of 

ASU 2016–13 2019 Stress test cycle 2020 Stress test cycle 2021 Stress test cycle 

2019 ................................ Provision for loan and lease losses .. Provision for credit losses ................. Provision for credit losses. 

2020 ................................ Provision for loan and lease losses .. Provision for credit losses ................. Provision for credit losses. 

2021 ................................ Provision for loan and lease losses .. Provision for loan and lease losses .. Provision for credit losses. 

In addition, beginning in the 2020 

stress test cycle, a banking organization 

that has adopted CECL will be required 

under the final rule to incorporate the 

effects of the maintenance of AACL 

when estimating the impact on pro 

forma regulatory capital levels and pro 

forma capital ratios. 

3. FDIC Regulations 

The final rule makes conforming 

amendments to references to provisions 

or allowances for loan and lease losses 

in the FDIC’s regulations. Specifically, 

the final rule would replace, for CECL 

adopters, all references to ALLL with 

AACL (as applicable) in the FDIC’s 

capital rule codified at 12 CFR part 324, 

including in the definitions of 

‘‘identified losses’’ and ‘‘standardized 

total risk-weighted assets.’’ The final 

rule also makes conforming changes to 

the FDIC regulations in 12 CFR parts 

327 and 347 by replacing references to 

ALLL with allowance for credit losses 

(as determined in accordance with U.S. 

GAAP). The final rule also makes 

conforming changes to 12 CFR part 390 

by adding provision for credit losses. 

Finally, consistent with the changes to 

the Board’s stress testing rules, the final 

rule makes similar conforming changes 

to the FDIC’s stress testing rules 

codified at 12 CFR part 325. 

IV. Long Term Considerations With 

CECL 

Several commenters recommended 

that the agencies neutralize the effects of 

CECL in the capital rule as an 

alternative to the proposed phase-in 

approach. Several commenters 

requested that the agencies study 

CECL’s effect on regulatory capital, 

including CECL’s effects over the 

economic cycle; review the regulatory 

capital requirements with respect to 

allowances; and conduct cost-benefit 

analysis of CECL’s implementation on 

small and medium-sized banking 

organizations. One commenter 

requested that the agencies ask the 

FASB to delay implementation of CECL 

until a study is conducted on CECL’s 

effects on the overall stability of the 

banking sector and on the availability, 

accessibility, and affordability of credit. 

One commenter asked the agencies to 

engage with the FASB to make changes 

to CECL to minimize its effects on 

regulatory capital. Another commenter 

asked the agencies to consider issuing 

interpretative industry guidelines that 

will help narrow the range of potential 

practices. Additional comments were 

received on the interaction between 

CECL and stress testing. One commenter 

asked that any decision the Board makes 

regarding implementation of CECL to 

depository institution holding 

companies that are engaged in 

significant insurance activities reflect 

the Building Block Approach to capital. 

The agencies recognize commenters’ 

concerns about CECL’s effects on 

regulatory capital. The agencies are 

committed to closely monitoring the 

effects of CECL on regulatory capital 

and bank lending practices. This 

ongoing monitoring will include the 

review of data provided by banking 

organizations, as well as information 

observed from banking organizations’ 

parallel runs before their adoption of 

CECL and their implementation of 

CECL. 

V. Regulatory Analyses 

A. Paperwork Reduction Act 

Certain provisions of the final rule 

contain ‘‘collection of information’’ 

requirements within the meaning of the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 3501–3521) (PRA). 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 

Office of Management and Budget 

(OMB) control number. The agencies 

reviewed the final rule and determined 

that the final rule revises certain 

4232 Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 

29 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 

(October 27, 2017), in order to be consistent across 

the agencies, the agencies are also applying a 

conforming methodology for calculating the burden 

estimates. 

disclosure and reporting requirements 

that have been previously cleared by the 

OMB under various control numbers. 

The agencies will revise and extend 

these information collections for three 

years. The information collections for 

the disclosure requirements contained 

in the final rulemaking have been 

submitted by the OCC and FDIC to OMB 

for review and approval under section 

3507(d) of the PRA (44 U.S.C. 3507(d)) 

and section 1320.11 of the OMB’s 

implementing regulations (5 CFR part 

1320). The Board reviewed the final rule 

under the authority delegated to the 

Board by OMB. 

Disclosure Burden—Advanced 

Approaches Banking Organizations 

Current Actions 

Section 173 of the capital rule 

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 made revisions to Tables 2, 3, 

and 5 in section 173 of the capital rule 

to reflect the adoption of CECL. In 

addition, the agencies made revisions to 

those tables for electing advanced 

approaches banking organizations to 

disclose two sets of regulatory capital 

ratios. One set reflects such banking 

organization’s capital ratios with the 

CECL transition provision and the other 

set reflects the banking organization’s 

capital ratios on a fully phased-in basis. 

This aspect of the final 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 rule 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 rule result in an increase in 

the average hours per response per 

agency of 6 hours for ongoing (quarterly) 

burden.29

Revision, With Extension, of the 

Following Information Collections 

OCC 

Title of Information Collection: RiskBased 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 Approach 

Recordkeeping (Initial setup)—460. 

Recordkeeping (Ongoing)—540.77. 

Recordkeeping (Ongoing quarterly)— 

20. 

Disclosure (Initial setup)—328. 

Disclosure (Ongoing)—5.78. 

Disclosure (Ongoing quarterly)—41. 

Revisions estimated annual burden: 

432 hours. 

Estimated annual burden hours: 1,088 

hours initial setup, 66,017 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), U.S. intermediate holding 

companies (IHCs), savings and loan 

holding companies (SLHCs), and global 

systemically important bank holding 

companies (GSIBs). 

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 Approach 

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. 

Revisions estimated annual burden: 

456 hours. 

Estimated annual burden hours: 1,136 

hours initial setup, 78,591 hours for 

ongoing. 

FDIC 

Title of Information Collection: 

Regulatory Capital Rule. 

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: 

3,575 (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 Approach 

Recordkeeping (Initial setup)—460. 

Recordkeeping (Ongoing)—540.77. 

Recordkeeping (Ongoing quarterly)— 

20. 

Disclosure (Initial setup)—328. 

Disclosure (Ongoing)—5.78. 

Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 4233 

30 83 FR 49160 (September 28, 2018). 

31See 5 U.S.C. 603, 604 and 605. 32 83 FR 22312 (May 14, 2018). 33Under regulations issued by the Small Business 

Administration, a small entity includes a depository 

institution, bank holding company, or savings and 

loan holding company with total assets of $550 

million or less and trust companies with total assets 

of $38.5 million or less. As of December 31, 2017, 

there were approximately 3,384 small bank holding 

companies, 230 small savings and loan holding 

companies, and 559 small state member banks. 

Disclosure (Ongoing quarterly)—41. 

Revisions estimated annual burden: 

96 hours. 

Estimated annual burden hours: 1,136 

hours initial setup, 130,806 hours for 

ongoing. 

Reporting Burden—FFIEC and Board 

Forms 

Current Actions 

The agencies also plan to make 

changes to certain FFIEC and Board 

reporting forms and/or their related 

instructions as a result of the issuance 

of ASU 2016–13. In particular, the forms 

and/or related instructions for the 

following FFIEC reports could be 

affected: Consolidated Reports of 

Condition and Income (Call Reports) 

(FFIEC 031, FFIEC 041, and FFIEC 051; 

OMB No. 1557–0081, 7100–0036, and 

3064–0052), Report of Assets and 

Liabilities of U.S. Branches and 

Agencies of Foreign Banks (FFIEC 002; 

OMB No. 7100–0032), Report of Assets 

and Liabilities of a Non-U.S. Branch that 

is Managed or Controlled by a U.S. 

Branch or Agency of a Foreign (NonU.S.) Bank (FFIEC 002S; OMB No. 

7100–0032), Foreign Branch Report of 

Condition (FFIEC 030; OMB No. 1557– 

0099, 7100–0071, and 3064–0011), 

Abbreviated Foreign Branch Report of 

Condition (FFIEC 030S; OMB No. 1557– 

0099, 7100–0071, and 3064–0011), and 

Regulatory Capital Reporting for 

Institutions Subject to the Advanced 

Capital Adequacy Framework (FFIEC 

101; OMB No. 1557–0239, 7100–0319, 

and 3064–0159). As a result of the 

proposal, a separate 60-day Federal 

Register notice 30 addressed these 

changes to the FFIEC forms and/or 

instructions. These changes will also be 

addressed in separate 30-day Federal 

Register notice. 

The forms and/or related instructions 

for the following Board reports could be 

affected: Financial Statements of 

Foreign Subsidiaries of U.S. Banking 

Organizations (FR 2314; OMB No. 7100– 

0073), Domestic Finance Company 

Report of Consolidated Assets and 

Liabilities (FR 2248; OMB No. 7100– 

0005), Weekly Report of Selected Assets 

and Liabilities of Domestically 

Chartered Commercial Banks and U.S. 

Branches and Agencies of Foreign Banks 

(FR 2644; OMB No. 7100–0075), 

Consolidated Report of Condition and 

Income for Edge and Agreement 

Corporations (FR 2886b; OMB No. 

7100–0086), Financial Statements of 

U.S. Nonbank Subsidiaries Held by 

Foreign Banking Organizations (FR Y– 

7N; 7100–0125), Consolidated Financial 

Statements for Holding Companies (FR 

Y–9C; OMB No. 7100–0128), Parent 

Company Only Financial Statements for 

Large Holding Companies (FR Y–9LP; 

OMB No. 7100–0128), Parent Company 

Only Financial Statements for Small 

Holding Companies (FR Y–9SP; OMB 

No. 7100–0128), Financial Statements of 

U.S. Nonbank Subsidiaries of U.S. 

Holding Companies (FR Y–11; OMB No. 

7100–0244), Capital Assessments and 

Stress Testing (FR Y–14; OMB No. 

7100–0341), and Banking Organization 

Systemic Risk Report (FR Y–15; OMB 

No. 7100- 0352). These changes to the 

FFIEC forms and/or instructions as well 

as the Board forms and/or instructions 

would be addressed in separate Federal 

Register notices. 

B. Regulatory Flexibility Act 

OCC: The Regulatory Flexibility Act, 

5 U.S.C. 601 et seq., (RFA), requires an 

agency, in connection with a final rule, 

to prepare an initial regulatory 

flexibility analysis describing the 

impact of the rule on small entities 

(defined by the Small Business 

Administration (SBA) for purposes of 

the RFA to include commercial banks 

and savings institutions with total assets 

of $550 million or less and trust 

companies with total revenue of $38.5 

million or less) or to certify that the 

final rule would not have a significant 

economic impact on a substantial 

number of small entities. As of 

December 31, 2017, the OCC supervised 

886 small entities. The final rule would 

apply to all OCC supervised entities, 

and thus potentially affects a substantial 

number of small entities. To determine 

whether a final rule would have a 

significant effect on those small entities, 

the OCC considers whether the 

economic impact associated with the 

final rule is greater than or equal to 

either 5 percent of a small entity’s total 

annual salaries and benefits or 2.5 

percent of a small entity’s total noninterest expense. The OCC estimates the 

final rule would not generate any costs 

for affected small entities. The final rule 

may generate a benefit for those small 

entities that elect the transition. The 

benefit ranges between approximately 

$4,800 to $30,000 per electing small 

entity, depending on the year the entity 

adopts the transition and the amount of 

increase in the entity’s loan loss 

reserves. This estimate is based on the 

potential savings to small entities from 

not needing to raise additional capital 

related to CECL implementation due to 

the regulatory capital transition. The 

estimated benefit is not significant in 

relation to the measures described 

above. Therefore, the OCC certifies that 

the final rule would not have a 

significant economic impact on a 

substantial number of OCC-supervised 

small entities. 

Board: The Regulatory Flexibility Act 

(RFA), 5 U.S.C. 601 et seq., generally 

requires that, in connection with a 

proposed rulemaking, an agency prepare 

and make available for public comment 

an initial regulatory flexibility analysis 

(IRFA).31 The Board solicited public 

comment on this proposal in a notice of 

proposed rulemaking 32 and has since 

considered the potential impact of this 

proposal on small entities in accordance 

with section 604 of the RFA. Based on 

the Board’s analysis, and for the reasons 

stated below, the Board believes the 

final rule will not have a significant 

economic impact on a substantial 

number of small entities. 

The RFA requires an agency to 

prepare a final regulatory flexibility 

analysis (FRFA) unless the agency 

certifies that the rule will not, if 

promulgated, have a significant 

economic impact on a substantial 

number of small entities.33 The FRFA 

must contain: (1) A statement of the 

need for, and objectives of, the rule; (2) 

a statement of the significant issues 

raised by the public comments in 

response to the IRFA, a statement of the 

agency’s assessment of such issues, and 

a statement of any changes made in the 

proposed rule as a result of such 

comments; (3) the response of the 

agency to any comments filed by the 

Chief Counsel for Advocacy of the Small 

Business Administration in response to 

the proposed rule, and a detailed 

statement of any changes made to the 

proposed rule in the final rule as a 

result of the comments; (4) a description 

of an estimate of the number of small 

entities to which the rule will apply or 

an explanation of why no such estimate 

is available; (5) a description of the 

projected reporting, recordkeeping and 

other compliance requirements of the 

rule, including an estimate of the classes 

of small entities which will be subject 

to the requirement and the type of 

professional skills necessary for 

preparation of the report or record; and 

(6) a description of the steps the agency 

has taken to minimize the significant 

economic impact on small entities, 

including a statement for selecting or 

rejecting the other significant 

4234 Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 

34 12 U.S.C. 3901–3911. 

35 12 U.S.C. 1831o. 

36 12 U.S.C. 3907(a)(1). 

37 12 U.S.C. 1831o(c)(2). 

38See 12 U.S.C. 3907. 

39See 12 U.S.C. 1844. 

40See 12 U.S.C. 1467a(g)(1). 

41 5 U.S.C. 601 et seq. 

42The SBA defines a small banking organization 

as having $550 million or less in assets, where ‘‘a 

financial institution’s assets are determined by 

averaging the assets reported on its four quarterly 

financial statements for the preceding year.’’ See 13 

CFR 121.201 (as amended, effective December 2, 

alternatives to the rule considered by 

the agency. 

Statement of the need for, and 

objectives of, the final rule. 

As discussed in detail above, the final 

rule identifies which credit loss 

allowances under ASU 2016–13 are 

eligible for inclusion in regulatory 

capital and provides banking 

organizations an optional three-year 

transition period to phase in the 

immediate effect on regulatory capital 

that may result from adoption of this 

accounting standard (ASU 2016–13). 

The final rule also makes conforming 

amendments to other regulations. 

The Board has authority under the 

International Lending Supervision Act 

(ILSA) 34 and the PCA provisions of the 

Federal Deposit Insurance Act 35 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.36

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.37 In addition, the 

Board has authority to establish 

regulatory capital standards for bank 

holding companies under ILSA 38 and 

the Bank Holding Company Act 39 and 

for savings and loan holding companies 

under the Home Owners Loan Act.40

All banking organizations will be 

required to adopt ASU 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 final rule identifies those 

credit loss allowances under ASU 2016– 

13 that are eligible for inclusion in 

regulatory capital. Further, the final rule 

introduces a three-year transition 

period, which allows a banking 

organization to phase in the immediate 

impact of adoption of ASU 2016–13. 

During the transition period, a banking 

organization that elects to use the phasein will report higher capital than it 

otherwise would under the current 

capital rule. 

The final rule also makes 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 final rule allows 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 

2016–13 that would be eligible for 

inclusion in regulatory capital. 

A discussion of the significant issues 

raised by public comments in response 

to the IRFA, and the Board’s response 

to any comments filed by the Chief 

Counsel for Advocacy of the Small 

Business Administration in response to 

the proposed rule. 

The Board did not receive any 

comments on the IRFA that it published 

in connection with the proposal. In 

addition, the Chief Counsel for 

Advocacy of the Small Business 

Administration did not file any 

comments in response to the proposal. 

Accordingly, no changes were made to 

the proposal as a result of RFA-related 

comments. 

Description and estimate of the 

number of small entities to which the 

rule will apply. 

Most aspects of the final rule 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. As of December 31, 

2017, there were approximately 3,384 

bank holding companies, 230 savings 

and loan holding companies, and 559 

state member banks that qualified as 

small entities. The final rule revises the 

Board’s capital rule, which applies to 

bank holding companies and savings 

and loan holding companies with 

greater than $1 billion in total assets. 

Therefore, virtually all bank holding 

companies and savings and loan 

holding companies that would be 

subject to the final rule do not qualify 

as small entities. The final rule will 

apply to state member banks that qualify 

as small entities. 

Description of the projected reporting, 

recordkeeping and other compliance 

requirements of the rule. 

The final rule will impose some small 

recordkeeping, reporting, and 

compliance requirements on Boardregulated institutions. Specifically, the 

final rule would change certain 

disclosure requirements for advancedapproaches institutions, which include 

banking organizations with consolidated 

assets of at least $250 billion or 

consolidated on-balance sheet foreign 

exposures of at least $10 billion or if the 

banking organization. These 

requirements would not apply to small 

entities, and there are no other expected 

compliance requirements associated 

with the final rule. The agencies are 

separately updating the relevant 

reporting forms. 

Description of the steps taken to 

minimize any significant economic 

impact on small entities. 

The Board does not believe that the 

final rule will impose significant costs 

on small entities. With respect to Boardregulated institutions that do qualify as 

small entities, the final rule’s revisions 

to the Board’s capital rule should allow 

institutions to include additional credit 

loss allowances into regulatory capital 

than they otherwise would be able to 

under the current capital rule. However, 

there is uncertainty as to the amount of 

the benefit that institutions will accrue, 

given that the impact of CECL will 

depend on the economic environment at 

the time a firm adopts CECL. The Board 

does not believe there are significant 

alternatives to the final rule that have 

less economic impact on small entities 

but the Board is committed to closely 

monitoring the effects of CECL on 

regulatory capital and bank lending 

practices. In addition, the Board does 

not believe that the final rule duplicates, 

overlaps, or conflicts with any other 

Federal Rules. 

FDIC: The Regulatory Flexibility Act 

(RFA), 5 U.S.C. 601 et seq., generally 

requires an agency, in connection with 

a final rule, to prepare and make 

available a final regulatory flexibility 

analysis that describes the impact of a 

final rule on small entities.41 However, 

a regulatory flexibility analysis is not 

required if the agency certifies that the 

rule will not have a significant 

economic impact on a substantial 

number of small entities. The Small 

Business Administration (SBA) has 

defined ‘‘small entities’’ to include 

banking organizations with total assets 

of less than or equal to $550 million 

who are independently owned and 

operated or owned by a holding 

company with less than $550 million in 

total assets.42

Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 4235 

2014). ‘‘SBA counts the receipts, employees, or 

other measure of size of the concern whose size is 

at issue and all of its domestic and foreign 

affiliates.’’ See 13 CFR 121.103. Following these 

regulations, the FDIC uses a covered entity’s 

affiliated and acquired assets, averaged over the 

preceding four quarters, to determine whether the 

covered entity is ‘‘small’’ for the purposes of RFA. 

43 12 CFR 3.20 (OCC); 12 CFR 217.20 (Board); 12 

CFR 324.20 (FDIC). 

44Under 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 U.S. GAAP. See 12 

U.S.C. 1831n(a)(2)(A). 45Call Report data, June 30 2018. 

Description of Need and Policy 

Objectives 

In June 2016, the FASB issued ASU 

2016–13, which revises the accounting 

for credit losses under U.S. GAAP. 

CECL differs from the incurred loss 

methodology currently implemented by 

institutions in several key respects. 

CECL requires banking organizations to 

recognize lifetime expected credit losses 

for financial assets measured at 

amortized cost, not just those credit 

losses that are probable of having been 

incurred as of the reporting date. In 

addition to maintaining the current 

requirement for banking organizations 

to consider past events and current 

conditions, CECL requires the 

incorporation of reasonable and 

supportable forecasts in developing an 

estimate of lifetime expected credit 

losses. 

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 credit loss 

allowances affect a banking 

organization’s calculation of regulatory 

capital.43 To address changes made in 

U.S. GAAP following the FASB’s 

issuance of ASU 2106–13, the FDIC is 

amending its capital rule 44 to give 

banking organizations the option to 

phase in the immediate, potentially 

adverse effects of CECL adoption over a 

three-year period. 

Description of the Final Rule 

A description of the rule is presented 

Section III: Final Rule. Please refer to it 

for further information. 

Other Federal Rules 

The FDIC has not identified any likely 

duplication, overlap, and/or potential 

conflicts between the final rule and any 

other federal rule. 

Response to Comments Regarding the 

Regulatory Flexibility Act 

The FDIC did not receive any public 

comments on the supporting 

information it presented in the 

Regulatory Flexibility Act section of the 

Notice of Proposed Rulemaking. 

The Agencies did receive public 

comments on the proposed rulemaking. 

A summary of those comments, and the 

Agencies’ consideration of them, is 

presented in Section II.B. The vast 

majority of public comments on the 

NPR related to the implementation of 

CECL rather than the economic impacts 

of the proposed transition period. 

Several commenters requested that 

the FDIC increase the transition period 

from the proposed three-year transition 

in the NPR to five years in order to 

develop and validate the necessary data 

and models. One commenter opposed 

expansion of the transition period, 

claiming that the three-year phase in is 

already generous given the advance 

notice banks have had of the new 

accounting standards, and that the new 

capital requirements reflect the socially 

optimal level of capital. Upon 

consideration of the comments, the 

FDIC has chosen to maintain the 

proposed three-year transition period. 

The FDIC believes that the three-year 

CECL transition provision will 

adequately address banking 

organizations’ challenges in capital 

planning for CECL implementation, 

while reducing the likelihood of a 

coincidence of rising capital 

requirements during a future downturn 

in the business cycle which could 

reduce the benefits of the rule and have 

deleterious effects on lending activity . 

Economic Impacts on Small Entities 

The final rule applies to all FDICsupervised small entities. The FDIC 

supervises 3,575 depository institutions, 

of which 2,763 are defined as small 

banking entities by the terms of the 

RFA.45 However, the number of small 

entities that will elect to utilize the 

three-year transition schedule is 

difficult to estimate with available 

information. Utilization will likely 

depend on an institution’s business 

model, the preferences of senior 

management or ownership, the assets 

held by the institution, and reasonable 

expectations of future macroeconomic 

conditions, among other things. 

As described in the overview section, 

the adoption of CECL will result in 

earlier recognition of credit losses when 

compared to the current incurred loss 

methodology. Therefore, the rule is 

intended to provide relief to covered 

institutions for certain adverse effects 

associated with the timing difference in 

provisioning for such losses, should 

they elect to utilize the option that this 

rule provides. The final rule will benefit 

small, FDIC-supervised institutions that 

adopt the three year transition schedule 

by allowing them to phase-in any 

needed increases in capital associated 

with the implementation of CECL over 

that time, thereby reducing costs by the 

time value of money. 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. However, institutions will 

ultimately need to raise the same 

amount of capital whether they use the 

phase-in option or not. The rule allows 

banks to spread the cost of raising 

additional capital over three years rather 

than incurring that cost right away, 

should they choose to do so. The value 

of that option depends on the discount 

rate, which is generally assumed to be 

near the risk-free interest rate, so the 

benefits of the rule are unlikely to 

constitute a significant economic 

impact. 

The final rule would pose some small 

regulatory costs for small, FDICsupervised institutions that opt to 

utilize the three-year transition 

schedule. However, the small regulatory 

costs associated with implementing the 

three-year transition schedule will be 

less than the benefits posed by utilizing 

the schedule for those institutions that 

opt to utilize it. 

Alternatives Considered 

As an alternative to the final rule, the 

FDIC considered allowing CECL to go 

into effect with no accompanying action 

by the financial regulators. However, 

this alternative would likely result in 

higher costs for small entities. The FDIC 

considered a longer transition period of 

up to five years, as some commenters 

requested. While this alternative might 

reduce the costs of adopting CECL more 

than the proposed alternative, it also 

heightens the risk of capital increases 

coinciding with a potential future 

downturn in the business cycle. The 

coincidence of rising capital 

requirements during a future downturn 

in the business cycle could reduce the 

benefits of the proposed rule and have 

deleterious effects on lending activity. 

A few commenters suggested allowing 

dynamic amortization whereby 

differences in allowances from an 

incurred loss estimate after the effective 

date could be amortized over the 

4236 Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 

46Public Law 106–102, section 722, 113 Stat. 

1338, 1471 (1999). 

47 5 U.S.C. 801(a)(3). 

48 5 U.S.C. 804(2). 

49 5 U.S.C. 553(d)(1). 

50 12 U.S.C. 4802(a). 

51 12 U.S.C. 4802. 

remaining transition period in order to 

address the volatility in the CECL 

allowance from a downturn in economic 

forecasts. The FDIC responded that, 

while there may be difficulties for 

capital planning due to the uncertainty 

of the economic environment at the time 

of CECL adoption, the extended 

transition period will mitigate any dayone adverse effects. The straight-line 

approach adopted by the FDIC avoids 

unnecessary complexity and operational 

burdens. 

Certification 

Based on the information presented 

above, the FDIC certifies that this rule 

will not have a significant economic 

impact on a substantial number of small 

entities. 

C. Plain Language 

Section 722 of the Gramm-LeachBliley Act 46 requires the Federal 

banking agencies to use plain language 

in all proposed and final rules 

published after January 1, 2000. The 

agencies have sought to present the final 

rule in a simple and straightforward 

manner and did not receive any 

comments on the use of plain language. 

D. OCC Unfunded Mandates Reform Act 

of 1995 

The OCC analyzed the final 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 final 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 $100 million or more 

in any one year (adjusted for inflation). 

The OCC has determined that this final 

rule would not result in expenditures by 

State, local, and Tribal governments, or 

the private sector, of $100 million or 

more in any one year. Accordingly, the 

OCC has not prepared a written 

statement to accompany this proposal. 

E. Small Business Regulatory 

Enforcement Fairness Act of 1996 

(SBREFA) 

For purposes of SBREFA, the OMB 

makes a determination as to whether a 

final rule constitutes a ‘‘major’’ rule. If 

a rule is deemed a ‘‘major rule’’ by the 

OMB, SBREFA generally provides that 

the rule may not take effect until at least 

60 days following its publication.47

Notwithstanding any potential delay 

related to the OMB’s pending 

determination, banking organizations 

subject to this final rule will be 

permitted to elect to comply with it as 

of January 1, 2019. 

SBREFA defines a ‘‘major rule’’ as any 

rule that the Administrator of the Office 

of Information and Regulatory Affairs of 

the OMB finds has resulted in or is 

likely to result in—(A) an annual effect 

on the economy of $100,000,000 or 

more; (B) a major increase in costs or 

prices for consumers, individual 

industries, Federal, State, or local 

government agencies or geographic 

regions, or (C) significant adverse effects 

on competition, employment, 

investment, productivity, innovation, or 

on the ability of United States-based 

enterprises to compete with foreignbased enterprises in domestic and 

export markets.48 As required by 

SBREFA, the agencies will submit the 

final rule and other appropriate reports 

to Congress and the Government 

Accountability Office for review. 

F. Administrative Procedure Act and 

Riegle Community Development and 

Regulatory Improvement Act of 1994 

The Administrative Procedure Act 

(APA) requires that a final rule be 

published in the Federal Register no 

less than 30 days before its effective 

date unless, among other exceptions, the 

final rule relieves a restriction.49

Pursuant to section 302(a) of the 

Riegle Community Development and 

Regulatory Improvement Act 

(‘‘RCDRIA’’),50 in determining the 

effective date and administrative 

compliance requirements for a new 

regulation that imposes additional 

reporting, disclosure, or other 

requirements on insured depository 

institutions, each Federal banking 

agency must 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, section 

302(b) of RCDRIA requires new 

regulations and amendments to 

regulations that impose additional 

reporting, disclosure, or other new 

requirements on insured depository 

institutions generally to 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.51

In accordance with these provisions, 

the agencies considered any 

administrative burdens, as well as 

benefits, that the final rule would place 

on depository institutions and their 

customers in determining the effective 

date and administrative compliance 

requirements of the final rule. The final 

rule provides regulatory capital 

transition provisions for banking 

organizations that early adopt CECL 

beginning after December 15, 2018, and 

thus relieves those banking 

organizations from compliance with 

certain stricter capital requirements that 

would otherwise have taken effect on 

January 1, 2019. However, the final rule 

also imposes new disclosure 

requirements for institutions that opt to 

utilize the three-year transition period. 

Therefore, in accordance with RCDRIA 

and the APA, the final rule will be 

effective no earlier than the first day of 

the calendar quarter following 30 days 

from the date on which the final rule is 

published in the Federal Register. 

Notwithstanding, banking organizations 

subject to this final rule will be 

permitted to elect to comply with it as 

of January 1, 2019. 

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. 

Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 4237 

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, Federal Reserve 

System, Mortgages, Reporting and 

recordkeeping requirements, Securities. 

12 CFR Part 211 

Exports, Federal Reserve System, 

Foreign banking, Holding companies, 

Investments, Reporting and 

recordkeeping requirements. 

12 CFR Part 215 

Credit, Penalties, Reporting and 

recordkeeping requirements. 

12 CFR Part 217 

Administrative practice and 

procedure, Banks, Banking, Capital, 

Federal Reserve System, Holding 

companies, Reporting and 

recordkeeping requirements, Risk, 

Securities. 

12 CFR Part 223 

Banks, Banking, Federal Reserve 

System. 

12 CFR Part 225 

Administrative practice and 

procedure, Banks, Banking, Federal 

Reserve System, Holding companies, 

Reporting and recordkeeping 

requirements, Securities. 

12 CFR Part 252 

Administrative practice and 

procedure, Banks, Banking, Federal 

Reserve System, Holding companies, 

Reporting and recordkeeping 

requirements, Securities. 

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, U.S. 

Investments abroad. 

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. 

Office of the Comptroller of the 

Currency 

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., 12 U.S.C. 24 

(Seventh), and 12 U.S.C. 93a. 

■ 2. Section 1.2 is amended by revising 

paragraph (a)(2) to read as follows: 

§ 1.2 Definitions. 

(a) * * * 

(2) The balance of a bank’s allowance 

for loan and lease losses or adjusted 

allowances 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 in alphabetical order a 

definition for ‘‘adjusted allowances for 

credit losses (AACL)’’; 

■ b. Revising the definitions of 

‘‘carrying value’’; 

■ c. Adding in alphabetical order a 

definition for ‘‘current expected credit 

losses (CECL)’’; and 

■ d. Revising the definition for ‘‘eligible 

credit reserves’’ and paragraph (2) of the 

definition of ‘‘standardized total riskweighted assets’’. 

The additions and revisions read as 

follows: 

§ 3.2 Definitions. 

* * * * * 

Adjusted allowances for credit losses 

(AACL) 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, adjusted 

allowances for credit losses include 

allowances for expected credit losses on 

off-balance sheet credit exposures not 

accounted for as insurance as 

determined in accordance with GAAP. 

Adjusted allowances for credit losses 

exclude ‘‘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-forsale 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 offbalance 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 AACL 

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 availableVerDate Sep<11>2014 18:23 Feb 13, 2019 Jkt 247001 PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 E:\FR\FM\14FER2.SGM 14FER2
4238 Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 

for-sale debt securities, and other 

specific reserves created against 

recognized losses. 

* * * * * 

Standardized total risk-weighted 

assets means: 

* * * * * 

(2) Any amount of a national bank’s 

or Federal savings association’s 

allowance for loan and lease losses or 

adjusted allowance for credit losses, as 

applicable, that is not included in tier 

2 capital and any amount of ‘‘allocated 

transfer risk reserves.’’ 

* * * * * 

§ 3.10 [Amended] 

■ 5. Section 3.10 is amended in 

paragraph (c)(3)(ii)(A) by removing the 

words ‘‘allowance for loan and lease 

losses’’ and adding in their place the 

words ‘‘allowance for loan and lease 

losses or adjusted allowance for credit 

losses, as applicable,’’. 

§ 3.20 [Amended] 

■ 6a. In § 3.20, in paragraph (d)(3), 

remove first occurrence of the word 

‘‘ALLL’’ and adding in its place the 

words ‘‘ALLL or AACL, as applicable,’’ 

and in the second occurrence ‘‘ALLL or 

AACL, as applicable’’ is added in its 

place. 

§ 3.22 [Amended] 

■ 6b. In § 3.22, in footnote 23 at the 

paragraph (c) subject heading, remove 

the word ‘‘ALLL’’ and add in its place 

the words ‘‘ALLL or AACL, as 

applicable,’’. 

§ 3.63 [Amended] 

■ 7a. In § 3.63, Table 5 is amended in its 

paragraphs (a)(5) and (e)(5) by removing 

the phrase ‘‘allowance for loan and lease 

losses,’’ and adding in its place 

wherever it appears the phrase 

‘‘allowance for loan and lease losses or 

adjusted allowance for credit losses, as 

applicable,’’ and in its paragraph (g) by 

removing the word ‘‘ALLL’’ and adding 

in its place the words ‘‘ALLL or AACL, 

as applicable’’. 

§ 3.124 [Amended] 

■ 7b. In § 3.124, in paragraph (a) remove 

the word ‘‘ALLL’’ and add in its place 

the words ‘‘ALLL or AACL, as 

applicable,’’ and in paragraph (b)(2) 

remove the word ‘‘ALLL’’ and add in its 

place ‘‘ALLL or AACL, as applicable’’. 

§ 3.173 [Amended] 

■ 8. Section 3.173 is amended: 

■ a. In Table 2 by adding a paragraph 

(e); 

■ b. In Table 3, by revising its paragraph 

(e), redesignating paragraph (f) as 

paragraph (g), and adding a new 

paragraph (f); and 

■ c. In Table 5 by: 

■ i. Removing the phrase ‘‘allowance for 

loan and lease losses,’’ and adding in its 

place the phrase ‘‘allowance for loan 

and lease losses or adjusted allowance 

for credit losses, as applicable,’’ in its 

paragraph (a)(5); and 

■ ii. Revising its paragraph (g). 

The additions and revisions read as 

follows: 

§ 3.173 Disclosures by certain advanced 

approaches national banks or Federal 

savings associations. 

* * * * * 

TABLE 2 TO § 3.173—CAPITAL STRUCTURE

*******

(e) (1) Whether the national bank or Federal savings association has elected to phase in recognition of the 

transitional amounts as defined in § 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 amounts. 

TABLE 3 TO § 3.173—CAPITAL ADEQUACY

*******

(e) (1) Common equity tier 1, tier 1 and total risk-based capital ratios reflecting the transition provisions described in § 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 TO § 3.173—CREDIT RISK: GENERAL DISCLOSURES

*******

(g) Reconciliation of changes in ALLL or AACL, as applicable.6

* * * * * * * 

*******

6The 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. 

Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 4239 

* * * * * 

Subpart G—Transition Provisions 

■ 9. Section 3.301 is added to subpart G 

to read as follows: 

§ 3.301 Current Expected Credit Losses 

(CECL) Transition. 

(a) CECL transition provision criteria. 

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 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 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 threeyear period 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) AACL transitional amount means 

the difference in the amount of a 

national bank’s or Federal savings 

association’s AACL 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 twentyfive percent of its CECL transitional 

amount during the third year of the 

transition period; 

(ii) Decrease amounts of DTAs arising 

from temporary differences by seventyfive 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 AACL by 

seventy-five percent of its AACL 

transitional amount during the first year 

of the transition period, decrease 

amounts of AACL by fifty percent of its 

AACL transitional amount during the 

second year of the transition period, and 

decrease amounts of AACL by twentyfive percent of its AACL transitional 

amount during the third year of the 

transition period; 

(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 by twentyfive 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 twentyfive 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 § 3.121(d) must 

decrease amounts of eligible credit 

reserves by seventy-five percent of its 

eligible credit reserves transitional 

amount during the first year of the 

transition period, decrease amounts of 

eligible credit reserves by fifty percent 

of its eligible credit reserves transitional 

amount during the second year of the 

transition provision, and decrease 

amounts of eligible credit reserves by 

twenty-five percent of its eligible credit 

reserves transitional amount during the 

third year of the transition provision. 

(3) 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 § 3.121(d), and 

whose amount of expected credit loss 

exceeded its eligible credit reserves 

immediately prior to the adoption of 

CECL, and that this has an increase in 

common equity tier 1 capital as of the 

beginning of the fiscal year in which it 

adopts CECL after including the first 

4240 Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 

year portion of the CECL transitional 

amount must decrease its CECL 

transitional amount used in paragraph 

(c) of this section by the full amount of 

its DTA transitional amount. 

(4) Notwithstanding any other 

requirement in this section, for purposes 

of this paragraph, in the event of a 

business combination involving a 

national bank or Federal savings 

association where one or both of the 

national banks or Federal savings 

associations 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, 2901 

et seq., 3907, and 5412(b)(2)(B). 

■ 11. Section 5.3 is amended by revising 

paragraph (e)(2) to read as follows: 

§ 5.3 Definitions. 

* * * * * 

(e) * * * 

(2) The balance of a national bank’s or 

Federal savings association’s allowance 

for loan and lease losses or adjusted 

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: 

§ 5.37 Investment in national bank or 

Federal savings association premises. 

* * * * * 

(c) * * * 

(3) * * * 

(ii) The balance of a national bank’s 

or Federal savings association’s 

allowance for loan and lease losses or 

adjusted 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: 

§ 23.2 Definitions. 

* * * * * 

(b) * * * 

(2) The balance of a bank’s allowance 

for loan and lease losses or adjusted 

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: 

§ 24.2 Definitions. 

* * * * * 

(b) * * * 

(2) The balance of a bank’s allowance 

for loan and lease losses or adjusted 

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: 

§ 32.2 Definitions 

* * * * * 

(c) * * * 

(2) The balance of a national bank’s or 

savings association’s allowance for loan 

and lease losses or adjusted 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 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). 

§ 46.8 [Amended] 

■ 22. Section 46.8 is amended by 

removing the phrase ‘‘loan and lease’’ 

and adding in its place ‘‘credit’’ in 

paragraphs (c)(3) and (d)(1). 

* * * * * 

Board of Governors of the Federal 

Reserve System 

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 § 208.2, paragraph (d) is revised 

to read as follows: 

§ 208.2 Definitions. 

* * * * * 

(d) Capital stock and surplus means, 

unless otherwise provided in this part, 

or by statute: 

Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 4241 

52Where State law establishes a lending limit for 

a State member bank that is lower than the amount 

permitted in section 5200 of the Revised Statutes, 

the lending limit established by applicable State 

laws shall be the lending limit for the State member 

bank. 

(1) Tier 1 and tier 2 capital included 

in a member bank’s risk-based capital 

(as defined in § 217.2 of Regulation Q); 

and 

(2) The balance of a member bank’s 

allowance for loan and lease losses or 

adjusted 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. 221 et seq., 1818, 

1835a, 1841 et seq., 3101 et seq., 3901 et seq., 

and 5101 et seq.; 15 U.S.C. 1681s, 1681w, 

6801 and 6805. 

Subpart A—International Operations of 

U.S. Banking Organizations 

■ 26. In § 211.2, revise paragraph (c)(1) 

to read as follows: 

§ 211.2 Definitions. 

* * * * * 

(c) * * 

(1) For organizations subject to 

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 adjusted 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 § 211.43, revise paragraph (c)(4) 

to read as follows: 

§ 211.43 Allocated transfer risk reserve. 

* * * * * 

(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, 

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 U.S. generally 

accepted accounting principles, or a 

reduction in the principal amount of the 

asset by application of interest 

payments or other collections on the 

asset. However, the Allowance for Loan 

and Lease Losses or allowance for credit 

losses, as applicable, must be 

replenished in such amount necessary 

to restore it to a level which adequately 

provides for the estimated losses 

inherent in the banking institution’s 

loan portfolio. 

* * * * * 

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 § 215.2, revise paragraph (i) to 

read as follows: 

§ 215.2 Definitions. 

* * * * * 

(i) Lending limit. The lending limit for 

a member bank is an amount equal to 

the limit of loans to a single borrower 

established by section 5200 of the 

Revised Statutes,52 12 U.S.C. 84. This 

amount is 15 percent of the bank’s 

unimpaired capital and unimpaired 

surplus in the case of loans that are not 

fully secured, and an additional 10 

percent of the bank’s unimpaired capital 

and unimpaired surplus in the case of 

loans that are fully secured by readily 

marketable collateral having a market 

value, as determined by reliable and 

continuously available price quotations, 

at least equal to the amount of the loan. 

The lending limit also includes any 

higher amounts that are permitted by 

section 5200 of the Revised Statutes for 

the types of obligations listed therein as 

exceptions to the limit. A member 

bank’s unimpaired capital and 

unimpaired surplus equals: 

(1) The bank’s tier 1 and tier 2 capital 

included in the bank’s risk-based capital 

under the capital rule of the appropriate 

Federal banking agency, based on the 

bank’s most recent consolidated report 

of condition filed under 12 U.S.C. 

1817(a)(3); and 

(2) The balance of the bank’s 

allowance for loan and lease losses or 

adjusted 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 rule 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 § 217.2, 

■ a. Add in alphabetical order a 

definition for ‘‘adjusted allowances for 

credit losses (AACL)’’; 

■ b. Revise the definition of ‘‘carrying 

value’’; 

■ c. Add in alphabetical order a 

definition for ‘‘current expected credit 

losses (CECL)’’; and 

■ d. Revise the definitions of ‘‘eligible 

credit reserves’’ and paragraph (2) or the 

definition of ‘‘standardized total riskweighted assets’’. 

The additions and revisions read as 

follows: 

§ 217.2 Definitions. 

* * * * * 

Adjusted allowances for credit losses 

(AACL) means, with respect to a Boardregulated 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, adjusted 

allowances for credit losses include 

allowances for expected credit losses on 

off-balance sheet credit exposures not 

accounted for as insurance as 

determined in accordance with GAAP. 

Adjusted allowances for credit losses 

exclude ‘‘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 

4242 Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 

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 offbalance sheet wholesale and retail 

exposures, including AACL 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 means: 

* * * * * 

(2) Any amount of the Boardregulated institution’s allowance for 

loan and lease losses or adjusted 

allowance for credit losses, as 

applicable, that is not included in tier 

2 capital and any amount of ‘‘allocated 

transfer risk reserves.’’ 

* * * * * 

§ 217.10 [Amended] 

■ 32. In § 217.10, in paragraph 

(c)(3)(ii)(A), remove the words 

‘‘allowance for loan and lease losses’’ 

and add, in their place, the words 

‘‘allowance for loan and lease losses or 

adjusted allowance for credit losses, as 

applicable,’’. 

§ 217.20 [Amended] 

■ 33a. In § 217.20, in paragraph (d)(3), 

remove the first occurrence of the word 

‘‘ALLL’’ and add in its place the words 

‘‘ALLL or AACL, as applicable,’’ and in 

the second occurrence ‘‘ALLL or AACL, 

as applicable’’ is added in its place. 

§ 217.22 [Amended] 

■ 33b. In § 217.22, in footnote 23 at the 

paragraph (c) subject heading, remove 

the word ‘‘ALLL’’ and add in its place 

the words ‘‘ALLL or AACL, as 

applicable,’’. 

§ 217.63 [Amended] 

■ 34a. In Table 5 to § 217.63, remove the 

words ‘‘allowance for loan and lease 

losses’’ and add, in their place, the 

words ‘‘allowance for loan and lease 

losses or adjusted allowance for credit 

losses, as applicable,’’ and remove the 

word ‘‘ALLL’’ and add, in its place, the 

words ‘‘ALLL or AACL, as applicable’’. 

§ 217.124 [Amended] 

■ 34b. In § 217.124, in paragraph (a) 

remove the word ‘‘ALLL’’ and add in its 

place the words ‘‘ALLL or AACL, as 

applicable,’’ and in paragraph (b)(2) 

remove the word ‘‘ALLL’’ and add in its 

place ‘‘ALLL or AACL, as applicable’’. 

■ 35. Amend § 217.173 as follows: 

■ 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. 

§ 217.173 Disclosures by certain advanced 

approaches Board-regulated institutions. 

* * * * * 

TABLE 2 TO § 217.173—CAPITAL STRUCTURE

*******

(e) (1) Whether the Board-regulated institution has elected to phase in recognition of the transitional 

amounts as defined in § 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 § 217.300(f). 

TABLE 3 TO § 217.173—CAPITAL ADEQUACY

*******

(e) (1) Common equity tier 1, tier 1 and total risk-based capital ratios reflecting the transition provisions described in § 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 51 TO § 217.173—CREDIT RISK: GENERAL DISCLOSURES

Qualitative disclosures ... (a) The general qualitative disclosure requirement with respect to credit risk (excluding counterparty credit 

risk disclosed in accordance with Table 7 to § 217.173), including: 

(1) Policy for determining past due or delinquency status; 

Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 4243 

TABLE 51 TO § 217.173—CREDIT RISK: GENERAL DISCLOSURES—Continued 

(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 adjusted 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 adjusted 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 AACL, as applicable.6

* * * * * * * 

1Table 5 to § 217.173 does not cover equity exposures, which should be reported in Table 9. 

2See, for example, ASC Topic 815–10 and 210–20, as they may be amended from time to time. 

3Geographical areas may comprise individual countries, groups of countries, or regions within countries. A Board-regulated institution might 

choose to define the geographical areas based on the way the company’s portfolio is geographically managed. The criteria used to allocate the 

loans to geographical areas must be specified. 4A Board-regulated institution is encouraged also to provide an analysis of the aging of past-due loans. 

5The portion of the general allowance that is not allocated to a geographical area should be disclosed separately. 

6The 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. 

* * * * * 

Subpart G—Transition Provisions 

■ 36. Add § 217.301 to subpart G to read 

as follows: 

§ 217.301 Current expected credit losses 

(CECL) transition. 

(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 threeyear period beginning the first day of 

the fiscal year in which a Boardregulated 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 Boardregulated institution’s adoption of 

CECL. 

(3) DTA transitional amount means 

the increase in the amount of a Boardregulated 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) AACL transitional amount means 

the difference in the amount of a Boardregulated institution’s AACL 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 Boardregulated 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 

4244 Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 

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 twentyfive percent of its CECL transitional 

amount during the third year of the 

transition period; 

(ii) Decrease amounts of DTAs arising 

from temporary differences by seventyfive 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 AACL by 

seventy-five percent of its AACL 

transitional amount during the first year 

of the transition period, decrease 

amounts of AACL by fifty percent of its 

AACL transitional amount during the 

second year of the transition period, and 

decrease amounts of AACL by twentyfive percent of its AACL transitional 

amount during the third year of the 

transition period; 

(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 by 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 Boardregulated 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 twentyfive percent of its CECL transitional 

amount during the third year of the 

transition period; and 

(ii) An advanced approaches Boardregulated institution that has completed 

the parallel run process and has 

received notification from the Board 

pursuant to § 217.121(d) must decrease 

amounts of eligible credit reserves by 

seventy-five percent of its eligible credit 

reserves transitional amount during the 

first year of the transition period, 

decrease amounts of eligible credit 

reserves by fifty percent of its eligible 

credit reserves transitional amount 

during the second year of the transition 

provision, and decrease amounts of 

eligible credit reserves by twenty-five 

percent of its eligible credit reserves 

transitional amount during the third 

year of the transition period. 

(3) An advanced approaches Boardregulated institution that has completed 

the parallel run process and has 

received notification from the Board 

pursuant to § 217.121(d), whose amount 

of expected credit loss exceeded its 

eligible credit reserves immediately 

prior to the adoption of CECL, and that 

has an increase in common equity tier 

1 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 used in 

paragraph (c) of this section by the full 

amount of its DTA transitional amount. 

(4) Notwithstanding any other 

requirement in this section, for purposes 

of this paragraph, in the event of a 

business combination involving a 

Board-regulated institution 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 § 223.3, revise paragraph (d) to 

read as follows: 

§ 223.3 What are the meanings of the other 

terms used in sections 23A and 23B and 

this part? 

* * * * * 

(d) Capital stock and surplus means 

the sum of: 

(1) A member bank’s tier 1 and tier 2 

capital under the capital rule 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 

adjusted allowance for credit losses, as 

applicable, not included in its tier 2 

capital under the capital rule 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 § 225.127, 

■ a. Remove ‘‘§ 225.25(b)(6)’’ wherever 

it appears and add in its place 

‘‘§ 225.28(b)(12)’’ and remove 

‘‘§ 225.23’’ in paragraphs (a) and (d) and 

add in its place ‘‘§ 225.23 or § 225.24’’; 

and 

■ b. Revise paragraph (h). 

The revision reads as follows: 

§ 225.127 Investments in corporations or 

projects designed primarily to promote 

community welfare. 

* * * * * 

(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 

Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 4245 

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 adjusted 

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 U.S. Banking 

Organizations With Total Consolidated 

Assets Over $10 Billion and Less Than 

$50 Billion 

■ 42. In § 252.12, revise paragraph (m) 

to read as follows: 

§ 252.12 Definitions. 

* * * * * 

(m) Provision for credit losses means: 

(1) Until December 31, 2019: 

(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 U.S. 

generally accepted accounting 

principles (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 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 

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 January 1, 2020: 

(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 § 252.15, revise paragraph (a)(1) 

and (2) to read as follows: 

§ 252.15 Methodologies and practices. 

(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 adjusted allowance for 

credit losses, as appropriate, for credit 

exposures throughout the planning 

horizon. 

* * * * * 

■ 44. In § 252.16, revise paragraph (b)(3) 

to read as follows: 

§ 252.16 Reports of stress test results. 

* * * * * 

(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 § 252.17, revise paragraphs 

(b)(1)(iii)(C), (b)(3)(iii)(C), and (c)(1) to 

read as follows: 

§ 252.17 Disclosure of stress test results. 

* * * * * 

(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 U.S. Bank Holding 

Companies with $50 Billion or More in 

Total Consolidated Assets and 

Nonbank Financial Companies 

Supervised by the Board 

■ 46. In § 252.42, revise paragraph (l) to 

read as follows: 

§ 252.42 Definitions. 

* * * * * 

(l) Provision for credit losses means: 

(1) Until December 31, 2019: 

(i) With respect to a covered company 

that has not adopted the current 

expected credit losses methodology 

under U.S. generally accepted 

accounting principles (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 January 1, 2020: 

(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 § 252.45, revise paragraph (b)(2) 

to read as follows: 

§ 252.45 Data and information required to 

be submitted in support of the Board’s 

analyses. 

* * * * * 

(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 

4246 Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 

the Board under the scenarios described 

in § 252.44(b). 

* * * * * 

Subpart F—Company-Run Stress Test 

Requirements for U.S. Bank Holding 

Companies with $50 Billion or More in 

Total Consolidated Assets and 

Nonbank Financial Companies 

Supervised by the Board 

■ 48. In § 252.52, revise paragraph (m) 

to read as follows: 

§ 252.52 Definitions. 

* * * * * 

(m) Provision for credit losses means: 

(1) Until December 31, 2019: 

(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 January 1, 2020: 

(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 § 252.56, revise paragraph (a)(1) 

and (2) to read as follows: 

§ 252.56 Methodologies and practices. 

(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 adjusted allowance for 

credit losses, as appropriate, for credit 

exposures throughout the planning 

horizon. 

* * * * * 

■ 50. In § 252.58, revise paragraphs 

(b)(2), (b)(3)(ii), and (c)(1)(ii) to read as 

follows: 

§ 252.58 Disclosure of stress test results. 

* * * * * 

(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-forsale and held-to-maturity securities, 

trading and counterparty losses or gains; 

* * * * * 

(c) * * * 

(1) * * * 

(i) * * * 

(ii) Provision for credit losses, 

realized losses/gains on available-forsale and held-to-maturity securities, 

trading and counterparty losses, and 

other losses or gain; 

* * * * * 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Chapter III 

Authority and Issuance 

For the reasons stated in the 

preamble, the Federal Deposit Insurance 

Corporation proposes to amend chapter 

III of Title 12, Code of Federal 

Regulations as follows: 

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 in alphabetical order a 

definition for ‘‘adjusted allowances for 

credit losses (AACL)’’; 

■ b. Revising the definition of ‘‘carrying 

value’’; 

■ c. Adding in alphabetical order a 

definition for ‘‘Current Expected Credit 

Losses (CECL)’’; 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: 

§ 324.2 Definitions. 

* * * * * 

Adjusted allowances for credit losses 

(AACL) means, with respect to an FDICsupervised 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, adjusted 

allowances for credit losses include 

allowances for expected credit losses on 

off-balance sheet credit exposures not 

accounted for as insurance as 

determined in accordance with GAAP. 

Adjusted allowances for credit losses 

exclude ‘‘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 FDIC-supervised 

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 an FDIC-supervised 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 an FDIC-supervised institution 

that has adopted CECL, all general 

allowances that have been established 

through a charge against earnings or 

Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 4247 

retained earnings to cover expected 

credit losses associated with on- or offbalance sheet wholesale and retail 

exposures, including AACL 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. 

* * * * * 

Identified losses means: 

(1) When measured as of the date of 

examination of an FDIC-supervised 

institution, those items that have been 

determined by an evaluation made by a 

state or Federal examiner as of that date 

to be chargeable against income, capital 

and/or general valuation allowances 

such as the allowances for loan and 

lease losses (examples of identified 

losses would be assets classified loss, 

off-balance sheet items classified loss, 

any provision expenses that are 

necessary for the FDIC-supervised 

institution to record in order to 

replenish its general valuation 

allowances to an adequate level, 

liabilities not shown on the FDICsupervised institution’s books, 

estimated losses in contingent 

liabilities, and differences in accounts 

which represent shortages) or the 

adjusted allowances for credit losses; 

and 

(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 FDIC-supervised 

institution to be chargeable against 

income, capital and/or general valuation 

allowances; or 

(B) By evaluations made by the FDICsupervised institution since its most 

recent examination to be chargeable 

against income, capital and/or general 

valuation allowances; and 

(ii) For which the appropriate 

accounting entries to recognize the loss 

have not yet been made on the FDICsupervised institution’s books nor has 

the item been collected or otherwise 

settled. 

* * * * * 

Standardized total risk-weighted 

assets * * * 

(2) Any amount of the FDICsupervised institution’s allowance for 

loan and lease losses or adjusted 

allowance for credit losses, as 

applicable, that is not included in tier 

2 capital and any amount of ‘‘allocated 

transfer risk reserves.’’ 

* * * * * 

§ 324.10 [Amended] 

■ 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 

adjusted allowance for credit losses, as 

applicable,’’. 

§ 324.20 [Amended] 

■ 54a. In § 324.20, in paragraph (d)(3), 

remove the first occurrence of the word 

‘‘ALLL’’ and add in its place the words 

‘‘ALLL or AACL, as applicable,’’ and in 

the second occurrence ‘‘ALLL or AACL, 

as applicable’’ is added in its place. 

§ 324.22 [Amended] 

■ 54b. In § 324.22, in footnote 23 at the 

paragraph (c) subject heading, remove 

the word ‘‘ALLL’’ and add in its place 

the words ‘‘ALLL or AACL, as 

applicable,’’. 

§ 324.63 [Amended] 

■ 55a. In Table 5 to § 324.63, in 

paragraph (a)(5), remove the phrase 

‘‘allowance for loan and lease losses,’’ 

and in paragraph (e)(5) remove the 

phrase ‘‘allowance for loan and lease 

losses’’ and add in their place 

‘‘allowance for loan and lease losses or 

adjusted allowance for credit losses, as 

applicable,’’ and in paragraph (g) by 

removing ‘‘ALLL’’ and adding in its 

place ‘‘ALLL or AACL, as applicable’’. 

§ 324.124 [Amended] 

■ 55b. In § 324.124, in paragraph (a), 

remove the word ‘‘ALLL’’ and add in its 

place the words ‘‘ALLL or AACL, as 

applicable,’’ and in paragraph (b) 

remove the word ‘‘ALLL’’ and add in its 

place ‘‘ALLL or AACL, as applicable’’. 

■ 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 to § 324.173, in 

paragraph (a)(5), remove the phrase 

‘‘allowance for loan and lease losses,’’ 

and in paragraph (e)(5) remove the 

phrase ‘‘allowance for loan and lease 

losses’’ and add in their place 

‘‘allowance for loan and lease losses or 

adjusted allowance for credit losses, as 

applicable,’’ and in paragraph (g) by 

removing ‘‘ALLL’’ and adding in its 

place ‘‘ALLL or AACL, as applicable’’. 

The additions and revisions read as 

set forth below. 

§ 324.173 Disclosures by certain advanced 

approaches FDIC-supervised institutions. 

* * * * * 

TABLE 2 TO § 324.173—CAPITAL STRUCTURE

*******

(e) (1) Whether the FDIC-supervised institution has elected to phase in recognition of the transitional 

amounts as defined in § 324.300(f). 

(2) The FDIC-supervised institution’s common equity tier 1 capital, tier 1 capital, and total capital without 

including the transitional amounts as defined in § 324.300(f). 

TABLE 3 TO § 324.173—CAPITAL ADEQUACY

*******

(e) (1) Common equity tier 1, tier 1 and total risk-based capital ratios reflecting the transition provisions described in § 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. 

*******

4248 Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 

* * * * * 

Subpart G—Transition Provisions 

■ 58. Add § 324.301 to subpart G to read 

as follows: 

§ 324.301 Current expected credit losses 

(CECL) transition. 

(a) CECL transition provision criteria. 

(1) An FDIC-supervised institution may 

elect to use a CECL transition provision 

pursuant to this section only if the 

FDIC-supervised institution records a 

reduction in retained earnings due to 

the adoption of CECL as of the 

beginning of the fiscal year in which the 

FDIC-supervised institution adopts 

CECL. 

(2) An FDIC-supervised institution 

that elects to use the CECL transition 

provision must use the CECL transition 

provision in the first Call Report filed by 

the FDIC-supervised institution after it 

adopts CECL. 

(3) An FDIC-supervised institution 

that does not elect to use the CECL 

transition provision as of the first Call 

Report 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 threeyear period beginning the first day of 

the fiscal year in which an FDICsupervised institution adopts CECL. 

(2) CECL transitional amount means 

the decrease net of any DTAs in the 

amount of an FDIC-supervised 

institution’s retained earnings as of the 

beginning of the fiscal year in which the 

FDIC-supervised institution adopts 

CECL from the amount of the FDICsupervised institution’s retained 

earnings as of the closing of the fiscal 

year-end immediately prior to the FDICsupervised institution’s adoption of 

CECL. 

(3) DTA transitional amount means 

the increase in the amount of an FDICsupervised institution’s DTAs arising 

from temporary differences as of the 

beginning of the fiscal year in which the 

FDIC-supervised institution adopts 

CECL from the amount of the FDICsupervised institution’s DTAs arising 

from temporary differences as of the 

closing of the fiscal year-end 

immediately prior to the FDICsupervised institution’s adoption of 

CECL. 

(4) AACL transitional amount means 

the difference in the amount of an FDICsupervised institution’s AACL as of the 

beginning of the fiscal year in which the 

FDIC-supervised institution adopts 

CECL and the amount of the FDICsupervised institution’s ALLL as of the 

closing of the fiscal year-end 

immediately prior to the FDICsupervised institution’s adoption of 

CECL. 

(5) Eligible credit reserves transitional 

amount means the increase in the 

amount of a FDIC-supervised 

institution’s eligible credit reserves as of 

the beginning of the fiscal year in which 

the FDIC-supervised institution adopts 

CECL from the amount of the FDICsupervised institution’s eligible credit 

reserves as of the closing of the fiscal 

year-end immediately prior to the FDICsupervised 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, an FDIC-supervised 

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 twentyfive percent of its CECL transitional 

amount during the third year of the 

transition period; 

(ii) Decrease amounts of DTAs arising 

from temporary differences by seventyfive 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 AACL by 

seventy-five percent of its AACL 

transitional amount during the first year 

of the transition period, decrease 

amounts of AACL by fifty percent of its 

AACL transitional amount during the 

second year of the transition period, and 

decrease amounts of AACL by twentyfive percent of its AACL transitional 

amount during the third year of the 

transition period; 

(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 by twentyfive 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 FDICsupervised 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 twentyfive percent of its CECL transitional 

amount during the third year of the 

transition period; and 

(ii) An advanced approaches FDICsupervised institution that has 

completed the parallel run process and 

has received notification from the FDIC 

pursuant to § 324.121(d) must decrease 

amounts of eligible credit reserves by 

seventy-five percent of its eligible credit 

reserves transitional amount during the 

first year of the transition period, 

decrease amounts of eligible credit 

reserves by fifty percent of its eligible 

credit reserves transitional amount 

during the second year of the transition 

provision, and decrease amounts of 

eligible credit reserves by twenty-five 

percent of its eligible credit reserves 

transitional amount during the third 

year of the transition period. 

(3) An advanced approaches FDICsupervised institution that has 

completed the parallel run process and 

has received notification from the FDIC 

pursuant to § 324.121(d), whose amount 

of expected credit loss exceeded its 

eligible credit reserves immediately 

prior to the adoption of CECL, and that 

has an increase in common equity tier 

1 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 used in 

paragraph (c) of this section by the full 

amount of its DTA transitional amount. 

(4) Notwithstanding any other 

requirement in this section, for purposes 

of this paragraph, in the event of a 

business combination involving an 

FDIC-supervised institution where one 

or both FDIC-supervised institutions 

Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 4249 

have elected the treatment described in 

this section: 

(i) If the acquirer FDIC-supervised 

institution (as determined under GAAP) 

elected the treatment described in this 

section, the acquirer FDIC-supervised 

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 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 FDICsupervised institution. 

PART 325—CAPITAL MAINTENANCE 

■ 59. 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. 

Subpart C—Annual Stress Test 

■ 60. In § 325.2, paragraph (g) is revised 

to read as follows: 

§ 325.2 Definitions. 

* * * * * 

(g) Provision for credit losses means: 

(1) Until December 31, 2019: 

(i) With respect to a state nonmember 

bank or state savings association that 

has not adopted the current expected 

credit losses methodology under U.S. 

generally accepted accounting 

principles (GAAP), the provision for 

loan and lease losses as reported on the 

Call Report in the current stress test 

cycle; and, 

(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 January 1, 2020: 

(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. 

* * * * * 

■ 61. In § 325.5, paragraph (a)(1) and (2) 

are revised to read as follows: 

§ 325.5 Methodologies and practices. 

(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 adjusted 

allowance for credit losses, as 

appropriate, for credit exposures 

throughout the planning horizon. 

* * * * * 

■ 62. In § 325.6, paragraph (b)(1) is 

revised to read as follows: 

§ 325.6 Required reports of stress test 

results to the FDIC and the Board of 

Governors of the Federal Reserve System. 

* * * * * 

(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 FDIC under this subpart, 

a description of the types of risks being 

included in the stress test, a summary 

description of the methodologies used 

in the stress test, and, for each quarter 

of the planning horizon, 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 FDIC). In 

addition, the report must include an 

explanation of the most significant 

causes for the changes in regulatory 

capital ratios and any other information 

required by the FDIC. 

* * * * * 

■ 63. In § 325.7, revise paragraphs (c)(3) 

and (d)(1) to read as follows: 

§ 325.7 Publication of stress test results. 

* * * * * 

(c) * * * 

(3) Estimates of aggregate losses, preprovision net revenue, provision for 

credit losses, net income, and pro forma 

capital ratios (including regulatory and 

any other capital ratios specified by the 

FDIC); and 

* * * * * 

(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 

■ 64. 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 

§ 327.16 [Amended] 

■ 65. Section 327.16 is amended in 

footnote 2 to the table in paragraph 

(a)(1)(ii) 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 

■ 66. 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. No. 111–203, section 939A, 124 

Stat. 1376, 1887 (July 21, 2010) (codified 15 

U.S.C. 78o–7 note). 

Subpart C—International Lending 

■ 67. In § 347.303, revise paragraphs 

(c)(2) and (4) to read as follows: 

§ 347.303 Allocated transfer risk reserve. 

* * * * * 

(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 

4250 Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / Rules and Regulations 

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 U.S. generally 

accepted accounting principles may be 

written down by a charge to the 

Allowance for Loan and Lease Losses or 

allowance for credit losses, as 

applicable. However, the Allowance for 

Loan and Lease Losses or allowance for 

credit losses, as applicable, must be 

replenished in such amount necessary 

to restore it to a level which adequately 

provides for the estimated losses 

inherent in the banking institution’s 

loan and lease portfolio. 

* * * * * 

PART 390—REGULATIONS 

TRANSFERRED FROM THE OFFICE OF 

THRIFT SUPERVISION 

■ 68. The authority citation for part 390 

continues to read as follows: 

Authority: 12 U.S.C. 1819. 

Subpart T—Accounting Requirements 

■ 69. In § 390.384, in the appendix in 

section II, revise paragraph 11, and in 

paragraph 12, remove the phrase 

‘‘provision for loan losses’’ and add in 

its place ‘‘provision for loan losses or 

provision for credit losses, as 

applicable’’. 

The revision reads as follows: 

§ 390.384 Financial statements for 

conversions, SEC filings, and offering 

circulars. 

* * * * * 

Appendix to § 390.384 * * * 

II. Income Statement 

* * * * * 

11. Provision for loan losses or provision 

for credit losses, as applicable. 

* * * * * 

Dated: December 18, 2018. 

William A. Rowe, 

Chief Risk Officer. 

By order of the Board of Governors of the 

Federal Reserve System. 

Ann E. Misback, 

Secretary of the Board. 

Dated at Washington, DC, on December 18, 

2018. 

By order of the Board of Directors. 

Federal Deposit Insurance Corporation. 

Valerie J. Best, 

Assistant Executive Secretary. 

[FR Doc. 2018–28281 Filed 2–13–19; 8:45 am] 

BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P