34924 Federal Register / Vol. 86, No. 124 / Thursday, July 1, 2021 / Rules and Regulations 

completely reviewed and approved in the 

design certification rulemaking and do not 

require a change to a design feature in the 

generic DCD are governed by the 

requirements in § 50.109 of this chapter. 

Changes that require a change to a design 

feature in the generic DCD are governed by 

the requirements in paragraph A or B of this 

section. 

2. Changes to U.S. ABWR DC generic TS 

and other operational requirements are 

applicable to all applicants who reference 

this appendix, except those for which the 

change has been rendered technically 

irrelevant by action taken under paragraph 

C.3 or C.4 of this section. 

3. The Commission may require plantspecific departures on generic TS and other 

operational requirements that were 

completely reviewed and approved, provided 

a change to a design feature in the generic 

DCD is not required and special 

circumstances, as defined in § 2.335 of this 

chapter are present. The Commission may 

modify or supplement generic TS and other 

operational requirements that were not 

completely reviewed and approved or require 

additional TS and other operational 

requirements on a plant-specific basis, 

provided a change to a design feature in the 

generic DCD is not required. 

4. An applicant who references this 

appendix may request an exemption from the 

generic TS or other operational requirements. 

The Commission may grant such a request 

only if it determines that the exemption will 

comply with the requirements of § 52.7. The 

granting of an exemption must be subject to 

litigation in the same manner as other issues 

material to the license hearing. 

5. A party to an adjudicatory proceeding 

for the issuance, amendment, or renewal of 

a license, or for operation under § 52.103(a), 

who believes that an operational requirement 

approved in the DCD or a TS derived from 

the generic TS must be changed, may petition 

to admit such a contention into the 

proceeding. The petition must comply with 

the general requirements of § 2.309 of this 

chapter and must either demonstrate why 

special circumstances as defined in § 2.335 of 

this chapter are present or demonstrate that 

the proposed change is necessary for 

compliance with the Commission’s 

regulations applicable and in effect, as set 

forth in Section V of this appendix. Any 

other party may file a response to the 

petition. If, on the basis of the petition and 

any response, the presiding officer 

determines that a sufficient showing has been 

made, the presiding officer shall certify the 

matter directly to the Commission for 

determination of the admissibility of the 

contention. All other issues with respect to 

the plant-specific TS or other operational 

requirements are subject to a hearing as part 

of the licensing proceeding. 

6. After issuance of a license, the generic 

TS have no further effect on the plantspecific TS. Changes to the plant-specific TS 

will be treated as license amendments under 

§ 50.90 of this chapter. 

IX. [Reserved] 

X. Records and Reporting 

A. Records 

1. The applicant for this appendix shall 

maintain a copy of the generic DCD that 

includes all generic changes that are made to 

Tier 1 and Tier 2, and the generic TS and 

other operational requirements. The 

applicant shall maintain the sensitive 

unclassified non-safeguards information 

(including proprietary information and 

security-related information) and safeguards 

information referenced in the generic DCD 

for the period that this appendix may be 

referenced, as specified in Section VII of this 

appendix. 

2. An applicant or licensee who references 

this appendix shall maintain the plantspecific DCD to accurately reflect both 

generic changes to the generic DCD and 

plant-specific departures made under Section 

VIII of this appendix throughout the period 

of application and for the term of the license 

(including any periods of renewal). 

3. An applicant or licensee who references 

this appendix shall prepare and maintain 

written evaluations which provide the bases 

for the determinations required by Section 

VIII of this appendix. These evaluations must 

be retained throughout the period of 

application and for the term of the license 

(including any periods of renewal). 

4.a. The applicant for the U.S. ABWR 

design shall maintain a copy of the aircraft 

impact assessment performed to comply with 

the requirements of § 50.150(a) of this 

chapter for the term of the certification 

(including any periods of renewal). 

b. An applicant or licensee who references 

this appendix shall maintain a copy of the 

aircraft impact assessment performed to 

comply with the requirements of § 50.150(a) 

of this chapter throughout the pendency of 

the application and for the term of the license 

(including any periods of renewal). 

B. Reporting 

1. An applicant or licensee who references 

this appendix shall submit a report to the 

NRC containing a brief description of any 

plant-specific departures from the DCD, 

including a summary of the evaluation of 

each departure. This report must be filed in 

accordance with the filing requirements 

applicable to reports in § 52.3. 

2. An applicant or licensee who references 

this appendix shall submit updates to its 

plant-specific DCD, which reflect the generic 

changes to and plant-specific departures from 

the generic DCD made under Section VIII of 

this appendix. These updates shall be filed 

under the filing requirements applicable to 

final safety analysis report updates in 

§§ 50.71(e) of this chapter and 52.3. 

3. The reports and updates required by 

paragraphs X.B.1 and X.B.2 of this appendix 

must be submitted as follows: 

a. On the date that an application for a 

license referencing this appendix is 

submitted, the application must include the 

report and any updates to the generic DCD. 

b. During the interval from the date of 

application for a license to the date the 

Commission makes its finding required by 

§ 52.103(g) of this chapter, the report must be 

submitted semi-annually. Updates to the 

plant-specific DCD must be submitted 

annually and may be submitted along with 

amendments to the application. 

c. After the Commission makes the finding 

required by § 52.103(g), the reports and 

updates to the plant-specific DCD must be 

submitted, along with updates to the sitespecific portion of the final safety analysis 

report for the facility, at the intervals 

required by §§ 50.59(d)(2) and 50.71(e)(4) of 

this chapter, respectively, or at shorter 

intervals as specified in the license. 

Dated: June 23, 2021. 

For the Nuclear Regulatory Commission. 

Annette Vietti-Cook, 

Secretary of the Commission. 

[FR Doc. 2021–13801 Filed 6–30–21; 8:45 am] 

BILLING CODE 7590–01–P 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Part 702 

RIN 3133–AF03 

Transition to the Current Expected 

Credit Loss Methodology 

AGENCY: National Credit Union 

Administration (NCUA). 

ACTION: Final rule. 

SUMMARY: This final rule facilitates the 

transition of federally insured credit 

unions (FICUs) to the current expected 

credit loss (CECL) methodology required 

under Generally Accepted Accounting 

Principles (GAAP). The final rule 

provides that, for purposes of 

determining a FICU’s net worth 

classification under the prompt 

corrective action (PCA) regulations, the 

Board will phase-in the day-one adverse 

effects on regulatory capital that may 

result from adoption of CECL. 

Consistent with regulations issued by 

the other federal banking agencies, the 

final rule will temporarily mitigate the 

adverse PCA consequences of the dayone capital adjustments, while requiring 

that FICUs account for CECL for other 

purposes, such as Call Reports. The 

final rule also provides that FICUs with 

less than $10 million in assets are no 

longer required to determine their 

charges for loan losses in accordance 

with GAAP. These FICUs may instead 

use any reasonable reserve methodology 

(incurred loss), provided that it 

adequately covers known and probable 

loan losses. The final rule follows 

publication of an August 19, 2020, 

proposed rule and takes into 

consideration the public comments 

received on the proposed rule. 

DATES: Effective August 2, 2021. 


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Federal Register / Vol. 86, No. 124 / Thursday, July 1, 2021 / Rules and Regulations 34925 

1 85 FR 50964 (Aug. 19, 2020). The proposed rule 

is available from the Federal Register website at: 

https://www.govinfo.gov/content/pkg/FR-2020-08- 

19/pdf/2020-16987.pdf. 

2CECL applies to all credit unions, irrespective 

of whether the credit union is federally insured or 

whether it is chartered federally or under state law. 

3FASB originally established the following three 

categories of entities subject to CECL: (1) PBE SEC 

filers; (2) PBEs that are not SEC filers; and (3) nonPBEs (including FICUs). The original 

implementation date for non-PBEs was December 

15, 2020. FASB subsequently delayed the 

implementation date for non-PBEs until December 

15, 2021. (https://www.fasb.org/jsp/FASB/

Document_C/DocumentPage?cid=1176168232528&

acceptedDisclaimer=true) FASB issued a second 

update consolidating the entities subject to CECL 

into two categories (SEC filers (not including SRCs) 

and all other entities) and further extending the 

implementation dates as described above. (https:// 

www.fasb.org/jsp/FASB/Document_C/

DocumentPage?cid=1176173775344&accepted

Disclaimer=true). 

4FASB ASU No. 2016–13, Financial 

Instruments—Credit Losses (Topic 326), 

Measurement of Credit Losses on Financial 

Instruments, June 2016, page 5. FASB ASU No. 

2016–13 is available at: https://www.fasb.org/jsp/ 

FASB/Document_C/DocumentPage&cid=

1176168232528. Section 4014 of the Coronavirus 

Aid, Relief, and Economic Security (CARES) Act 

(Pub. L. 116–136) suspended mandatory 

compliance with CECL between March 27, 2020 

(the date of enactment of the CARES Act) and the 

earlier of: (1) The date on which the national 

emergency concerning the novel coronavirus 

disease (COVID–19) outbreak declared by the 

President on March 13, 2020, under the National 

Emergencies Act (50 U.S.C. 1601 et seq.) terminates; 

or (2) December 31, 2020. This provision is not 

applicable to virtually any FICU because, as noted, 

they are not required to begin compliance with 

CECL until December 15, 2022, and a very small 

number have adopted it earlier voluntarily. 

5See Frequently Asked Questions on the New 

Accounting Standard on Financial Instruments— 

Credit Losses, issued by the Board of Governors of 

the Federal Reserve System, the Federal Deposit 

Insurance Corporation, the National Credit Union 

Administration, and the Office of the Comptroller 

of the Currency on April 3, 2019, for a more 

comprehensive discussion of the changes made by 

CECL to existing GAAP standards. The document 

is available at: https://www.ncua.gov/files/letterscredit-unions/financial-instruments-credit-lossesfaqs.pdf. 

FOR FURTHER INFORMATION CONTACT: 

Policy and Accounting: Alison L. Clark, 

Chief Accountant, Office of 

Examinations and Insurance, at (703) 

518–6360; Legal: Ariel Pereira, Senior 

Staff Attorney, Office of General 

Counsel, at (703) 548–2778; or by mail 

at National Credit Union 

Administration, 1775 Duke Street, 

Alexandria, Virginia 22314. 

SUPPLEMENTARY INFORMATION: 

I. This Final Rule 

II. Background 

A. CECL Accounting Methodology 

B. The Board’s August 19, 2020, Proposed 

Rule 

III. Legal Authority 

A. The Board’s Rulemaking Authority, 

Generally 

B. CECL Transition 

C. Small FICU Charges for Loan Losses 

D. Alternatives to GAAP 

IV. Discussion of the Public Comments on 

the August 19, 2020, Proposed Rule 

A. The Comments, Generally 

B. Comments Regarding Transition PhaseIn 

C. Comments Regarding GAAP Exemption 

for Smaller FICUs 

V. Description of Final Rule 

A. New Subpart G to Part 702 

B. Eligibility for the Transition Provisions 

C. NCUA Implementation of the Transition 

Provisions 

D. Mechanics of the CECL Transition 

Provisions 

E. Example of Transition Schedule 

F. Statutory Limit on Amount of Net Worth 

Ratio Change 

G. NCUA Oversight 

H. Small FICU Determinations of Charges 

for Loan Losses 

VI. Department of the Treasury Report 

VII. Regulatory Procedures 

A. Regulatory Flexibility Act 

B. Paperwork Reduction Act 

C. Executive Order 13132 on Federalism 

D. Assessment of Federal Regulations and 

Policies on Families 

E. Small Business Regulatory Enforcement 

Fairness Act 

I. This Final Rule 

On July 30, 2020, the NCUA Board 

(Board) proposed amending the agency’s 

regulations to facilitate the adoption by 

FICUs of the CECL accounting 

methodology as mandated by GAAP. 

The proposed rule was subsequently 

published in the Federal Register on 

August 19, 2020.1 This final rule follows 

publication of the August 19, 2020, 

proposed rule and takes into 

consideration the public comments 

received on the proposal. Following 

consideration of the comments, the 

Board has decided to make the 

following changes to the proposed rule: 

1. The Board has made a technical 

change to the regulatory text for 

purposes of clarity. The Board has 

removed the references to specific 

calendar dates in the discussion of the 

transition period for the phase-in. The 

regulatory text now consistently refers 

to fiscal years. 

2. The final rule also clarifies that 

state-chartered FICUs with less than $10 

million in assets and that are required 

by state law to comply with GAAP are 

eligible for the transition phase-in. 

Section IV. of this preamble 

summarizes the significant issues raised 

by the public commenters on the 

proposed rule, as well as the Board’s 

responses to these issues, including the 

Board’s rationale for making the change 

listed above. 

II. Background 

A. CECL Accounting Methodology 

The CECL standard applies to all 

banks, savings associations, credit 

unions,2 and financial institution 

holding companies, regardless of size, 

that file regulatory reports for which the 

reporting requirements conform to 

GAAP. Adoption of CECL is expected to 

result in greater transparency of 

expected losses at an earlier date during 

the life of a loan. 

The Federal Accounting Standards 

Board (FASB), which establishes the 

GAAP standards, provided a staggered 

effective date for CECL. In doing so, it 

has recognized two classes of 

institutions subject to CECL: (1) Public 

business entities (PBEs) that meet the 

definition of a U.S. Securities and 

Exchange (SEC) filer, excluding entities 

eligible to be smaller reporting 

companies (SRCs) as defined by the 

SEC, and (2) all other entities, which 

includes FICUs. The effective date for 

SEC-filers (other than SRCs) was fiscal 

years beginning after December 15, 

2019. All other entities (including all 

FICUs) are required to commence 

implementation of the standard for 

fiscal years beginning after December 

15, 2022.3 All entities subject to CECL, 

however, may voluntarily elect to adopt 

CECL earlier than the specified 

implementation date, commencing as 

early as fiscal years beginning after 

December 15, 2018, including interim 

periods within those fiscal years.4

CECL differs from the incurred loss 

methodology currently used by FICUs in 

several key respects. Most significantly 

for purposes of this rulemaking, CECL 

requires the recognition of lifetime 

expected credit losses for financial 

assets measured at amortized cost, not 

just those credit losses that have been 

incurred as of the reporting date. CECL 

also requires the incorporation of 

reasonable and supportable forecasts in 

developing an estimate of lifetime 

expected credit losses, while 

maintaining the current requirement for 

consideration of 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.5

Upon adoption of CECL, an 

institution will record a cumulativeeffect adjustment to retained earnings 

(known as ‘‘the day-one adjustment’’). 


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6See the February 14, 2019, proposed rule 

published by the Office of Comptroller of the 

Currency, the Federal Reserve Board, and the 

Federal Deposit Insurance Corporation, at 84 FR 

4222 (February 14, 2019), and modified by interimfinal rule published on March 31, 2020, at 62 FR 

17723 (March 31, 2020). 

7 12 U.S.C. 1751 et seq. 

8 12 U.S.C. 1766(a). 

9 12 U.S.C. 1790d. Other provisions of the FCU 

Act providing the Board with specific rulemaking 

authority include section 207 (12 U.S.C. 1787), 

which is a specific grant of authority over share 

insurance coverage, conservatorships, and 

liquidations. Section 209 (12 U.S.C. 1789) grants the 

Board plenary regulatory authority to issue rules 

and regulations necessary or appropriate to carry 

out its role as share insurer for all FICUs. 

10 12 U.S.C. 1790d(c)(2)(A). 

11 12 U.S.C. 1790d(c)(2)(B). 

12Termed the ‘‘leverage ratio’’ in the banking 

agencies’ regulations governing capital adequacy 

standards. See, 12 CFR 12 CFR 3.10 (OCC), 217.10 

(FRB), and 324.10 (FDIC). 

13The Board also finds that the other banking 

agencies’ March 31, 2020, interim final rule on this 

subject does not affect this analysis because it 

affects only those banking organizations that have 

adopted CECL as of 2020 and does not alter the 

three-year phase-in for other banking organizations 

that are covered in the same category of FASB’s 

standards. 

The day-one adjustment will be 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. A 

critical consideration for institutions 

subject to the new accounting rules will 

be the impact of CECL on capital. 

Institutions could experience a sharp 

increase in expected credit losses on the 

effective date as a result of the day-one 

adjustment, which could lower their 

capital classification under relevant 

statutory and regulatory authorities 

(such, as for example, under the Board’s 

PCA regulations for credit unions). 

B. The Board’s August 19, 2020, 

Proposed Rule 

The Board issued the August 19, 

2020, proposed rule to mitigate the 

adverse effects on a FICU’s PCA 

classification that may result from the 

day-one adjustment. Specifically, the 

proposed rule provides that, for 

purposes of the PCA regulations, the 

Board will phase-in the day-one effects 

on a FICU’s net worth ratio over a threeyear period (12 quarters). The proposed 

phase-in is consistent with the similar 

three-year phase-in provided by the 

other banking agencies to alleviate the 

impacts of adopting CECL on the 

banking organization subject to their 

supervision.6

Under the proposed rule, the phase-in 

would only be applied to those FICUs 

that adopt the CECL methodology for 

fiscal years beginning on or after 

December 15, 2022. FICUs that elect to 

adopt CECL earlier than the deadline 

established by FASB would not be 

eligible for the phase-in. Further, unlike 

banking organizations subject to the rule 

issued by the other banking agencies, 

eligible FICUs would not have the 

choice of opting into (or out of) the 

phase-in. Rather, the Board will apply 

the phase-in for all FICUs that meet the 

prescribed eligibility criteria. 

FICUs would continue to calculate 

their net worth in accordance with 

GAAP and would also continue to be 

required to account for CECL for all 

other purposes, such as Call Reports. 

Further, under the proposed rule, FICUs 

with less than $10 million in assets 

would no longer be required to 

determine their charges for loan losses 

in accordance with GAAP. This 

provision would eliminate the adverse 

PCA consequences for smaller FICUs 

resulting from CECL. The Board’s 

regulations would allow these FICUs to 

instead make charges for loan losses in 

accordance with any reasonable reserve 

methodology (incurred loss), provided 

that it adequately covers known and 

probable loan losses. Accordingly, 

FICUs in this asset-size category that 

choose to use the incurred loss 

methodology would not be subject to 

the phase-in described in this proposed 

rule. 

Interested readers should refer to the 

preamble of the Board’s August 19, 

2020, proposed rule for additional 

background information regarding the 

proposed regulatory changes. 

III. Legal Authority 

A. The Board’s Rulemaking Authority, 

Generally 

The Board is issuing this final rule 

pursuant to its authority under the 

Federal Credit Union (FCU) Act.7 The 

FCU Act grants the Board a broad 

mandate to issue regulations governing 

both federal credit unions and all 

FICUs. For example, section 120 of the 

FCU Act is a general grant of regulatory 

authority and authorizes the Board to 

prescribe rules and regulations for the 

administration of the act.8 Other 

provisions of the FCU Act, confer 

specific rulemaking authority to address 

prescribed issues or circumstances. For 

example, section 216 of the FCU Act 

directs the Board to establish by 

regulation a system of PCA to restore the 

net worth of FICUs.9 This final rule is 

being issued under both the general 

rulemaking authority conferred by 

section 120 of the FCU Act and also, as 

discussed below, the more specific grant 

of authority under section 216. 

B. CECL Transition 

Section 216 of the FCU Act authorizes 

the NCUA Board to issue regulations 

adjusting the net worth ratio 

requirements for FICUs if the other 

‘‘banking agencies increase or decrease 

the required minimum level for the 

leverage limit’’ pursuant to section 38 of 

the Federal Deposit Insurance (FDI) 

Act.10 In addition, section 216 of the 

FCU Act also requires that the Board 

determine—in consultation with the 

other banking agencies—‘‘the reason for 

the increase or decrease in the required 

minimum level for the leverage limit 

also justifies adjustment to the net 

worth ratios.’’ 11 In accordance with the 

consultation requirements, the NCUA, 

at the proposed rule stage, briefed 

relevant staff of the other banking 

agencies of the contents and purposes of 

this rulemaking. 

With regards to the other factor 

identified in the quoted statutory 

language, the February 14, 2019, final 

rule does not directly raise or lower the 

leverage limit,12 or any other of the 

capital ratios applicable to banking 

organizations. For example, the leverage 

limit (defined as the ratio of tier 1 

capital to average total consolidated 

assets) remains unchanged at 4 percent. 

Nevertheless, the stated intent of the 

other banking agencies was to 

effectively modify the capital ratios for 

purposes of PCA oversight. Accordingly, 

the NCUA has determined that both 

conditions set forth in section 216 have 

been satisfied for purposes of issuing 

this proposed rule.13

The effects of the proposed phase-in 

on a FICU’s net worth calculations are 

consistent with section 216 of the FCU 

Act and closely modeled on the CECL 

transition provisions issued by the other 

banking agencies. Specifically, the final 

rule is narrowly tailored to temporarily 

mitigating the impacts of CECL adoption 

on the PCA classification of a FICUs net 

worth. This final rule does not adjust 

the numeric net worth ratios under the 

NCUA’s PCA system. Further, the rule 

does not revise the definition of net 

worth, and FICUs will continue to 

calculate their net worth and net worth 

ratios in accordance with existing 

statutory and regulatory requirements. 

The sole purpose of the phase-in is to 

aid FICUs in adjusting to the new GAAP 

standards in a uniform manner and 

without disrupting their ability to serve 

their members. 

The Board notes that while section 

216 defines ‘‘net worth’’—the numerator 

for determining the net worth ratio—it 

does not define the term ‘‘total assets,’’ 

which comprises the denominator of the 

equation. The definition of the term is 


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14 12 CFR 702.2(k). 

15 12 U.S.C. 1782(b)(6)(C)(i). 

16 12 U.S.C. 1782(b)(6)(C)(iii). 

left to the regulatory discretion of the 

Board. The Board has elected to exercise 

this discretion and defined ‘‘total 

assets’’ in part 702. Specifically, the 

regulations provide that a FICU’s total 

assets may be measured by either its (1) 

average quarterly balance; (2) average 

monthly balance; (3) average daily 

balance; or (4) quarter-end balance.14 As 

an alternative to the phase-in that would 

be provided by this final rule, the Board 

could have elected to revise the 

definition of ‘‘total assets’’ in a manner 

enabling FICUs to effect the CECL dayone adjustments without undue adverse 

consequences. The Board opted for the 

phase-in given its simplicity and ease of 

administration. Nonetheless, the Board 

acknowledges that an alternative legal 

basis exists for rulemaking to mitigate 

the consequences of CECL 

implementation. 

C. Small FICU Charges for Loan Losses 

Section 202 of the FCU Act requires 

that, in general, ‘‘applicable reports and 

statements required to be filed with the 

Board shall be uniform and consistent 

with’’ GAAP.15 The statute, however, 

also provides an exception to GAAP 

compliance for FICUs with total assets 

of ‘‘less than $10,000,000, unless 

prescribed by the Board or an 

appropriate State credit union 

supervisor.’’ 16

The Board’s regulations in § 702.402 

require that charges for loan losses be 

made in accordance with GAAP and 

does not distinguish based on the asset 

size of FICUs. In effect, § 702.402 

exercises the Board’s discretion under 

section 202 of the FCU Act to override 

the exception for smaller FICUs by 

prescribing regulations. The Board has 

elected to once again exercise its 

statutory discretion under section 202 of 

the FCU Act. The Board’s regulations 

will no longer require that FICUs with 

total assets less than $10 million make 

charges for loan losses in accordance 

with GAAP. Instead the regulations will 

allow these FICUs to make such charges 

under any reasonable reserve 

methodology (incurred loss) provided it 

adequately covers known and probable 

loan losses. The transition provisions 

described above apply to FICUs 

adopting CECL. Accordingly, smaller 

FICUs that elect to use a non-GAAP 

measure are not eligible for the phasein. 

The Board also notes that section 202 

of the FCU Act could also potentially, 

as an alternative to the provisions 

discussed above, authorize the Board to 

provide a transition of the day-one 

effects of CECL implementation. This 

provision authorizes the Board to 

prescribe an accounting principle for 

application to any FICU if the Board 

determines that the application of a 

GAAP principle is not appropriate. 

Because the Board has clear authority to 

effect the transition to CECL under 

section 216, it is not necessary to rely 

on section 202. 

IV. Discussion of the Public Comments 

on the August 19, 2020, Proposed Rule 

A. The Comments, Generally 

The public comment period on the 

proposed rule closed on October 19, 

2020. The NCUA received 18 public 

comments on the proposal. Comments 

were received from individual FICUs, as 

well as from national, state, and regional 

organizations representing FICUs. 

Thirteen of the commenters objected 

to FASB’s application of CECL to FICUs, 

largely due to the anticipated negative 

impact of the day-one adjustment. The 

commenters wrote that FICUs building 

reserves to meet the CECL benchmark 

will be diverting funds that could 

otherwise be used to provide credit to 

members and communities during the 

ongoing COVID–19 event. They urged 

the NCUA to continue exploring all 

avenues, including working with FASB, 

to exempt FICUs from the CECL 

requirements. 

While believing CECL should not 

apply to FICUs at all, the commenters 

unanimously supported the proposed 

rule. The commenters commended the 

Board’s efforts to assist FICUs with the 

transition to the CECL methodology. 

Several of these commenters, however, 

also offered suggested changes to the 

proposed rule. 

NCUA Response: The Board 

appreciates the support expressed by 

the commenters, as well as the specific 

questions and concerns raised in their 

individual comments. The Board has 

addressed these specific comments 

below. The Board reiterates its belief 

that, given the unique characteristics of 

the credit union industry, the CECL 

accounting standards should not apply 

to FICUs. The Board will continue to 

work with FASB, the other banking 

agencies, and appropriate stakeholders 

to exempt FICU from these standards. 

B. Comments Regarding Transition 

Phase-In 

Comment: Mandatory opt-in for 

transition phase-in. Under the proposed 

rule, FICUs would not have the option 

of electing whether to opt into (or out 

of) the transition provisions. Several 

commenters urged the NCUA to 

reconsider this automatic approach and 

provide a FICU with the ability to opt 

into or out of the transition provisions 

based on its financial condition. The 

commenters wrote that, for strategic 

reasons, some FICUs may wish to 

recognize the full cost and adverse effect 

on their capital of CECL in one year 

rather than phasing in the adverse 

effects over a prolonged period. The 

commenters wrote that if the NCUA 

decides it must determine eligibility, the 

agency should expand the factors upon 

which the determination is made 

beyond a reduction in earnings caused 

by the application of CECL. For 

example, the NCUA might consider 

additional factors, such as asset quality 

and overall risk in the loan portfolio, 

current financial condition of the credit 

union, and the current state of the 

economy at the time of the 

determination. Alternatively, the NCUA 

could limit the mandatory opt-in for 

FICUs with a lower CAMEL rating. 

NCUA Response: The Board has 

declined to adopt these comments. As 

the commenters note, it is true that 

some FICUs will have a business 

rationale for recognizing the day-one 

effects of CECL on their capital ratios. 

This final rule does not compel any 

FICU to make use of the transition 

phase-in. A FICU that determines 

adoption of CECL is in its best interests 

has the option to do so, and is free to 

make this decision at any time until the 

effective date established by FASB for 

CECL implementation (fiscal years 

beginning after December 15, 2022). The 

Board continues to believe, however, 

that requiring an affirmative opt-in from 

the majority of FICUs that require the 

phase-in would constitute an 

unnecessary administrative exercise. 

Automatic implementation of the phasein by the NCUA will help to ensure its 

uniform application and that its benefits 

are provided to the greatest possible 

number of eligible FICUs. 

Comment: Option for longer phase-in. 

Two commenters suggested that the 

NCUA consider granting longer phase-in 

requests when a FICU’s projected 

capital level after three years is expected 

to remain below normal. According to 

the commenters, such flexibility would 

allow FICUs to focus on restoring 

capital levels during an appropriately 

tailored phase-in timeframe rather than 

bracing for adverse supervisory 

consequences or the administrative 

burden of heightened examiner 

scrutiny. 

NCUA Response: The Board believes 

that the three-year period will suffice to 

alleviate the most detrimental impacts 

on a FICU’s capital ratios resulting from 

adoption of CECL. Further, and as noted 


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34928 Federal Register / Vol. 86, No. 124 / Thursday, July 1, 2021 / Rules and Regulations 

17 12 U.S.C. 1790d(b)(1)(A). Section 38 of the FDI 

Act, 12 U.S.C. 1831o, was added by section 131 of 

the Federal Deposit Insurance Corporation 

Improvement Act, Public Law 102–242, 105 Stat. 

2236 (1991). 

18Supra, note 10. 

19Supra, note 6. 

20Supra note 1 at 50966–50967. 

21 Id. at 50968. 

22 12 CFR 3.301(b)(2). 23Supra note 1, at 50967. 

above, the Board is promulgating this 

rule pursuant to the legal authority 

conferred by section 216 of the FCU Act. 

In general, section 216 charges the 

NCUA with establishing PCA 

regulations that are ‘‘comparable’’ to 

section 38 of the FDI Act—the statute 

that applies PCA to other federally 

insured depository institutions.17 More 

specifically with regards to this 

rulemaking, section 216 authorizes the 

Board to ‘‘correspondingly’’ revise its 

regulations in response to changes made 

by the other banking agencies to the 

leverage limit under section 38 of the 

FDI Act.18 In accordance with these 

statutory directives, the phase-in 

provided by this final rule is modelled 

on the transition provisions adopted by 

the other banking agencies, and 

provides a similar three- year phase-in 

period.19 The Board therefore declines 

to make the suggested change in order 

to maintain consistency with the CECL 

transition provisions issued by the other 

banking agencies. 

Comment: Redefining ‘‘total assets’’ in 

the net worth calculation. Related to the 

preceding comment, one commenter 

noted the preamble language stating that 

‘‘[a]s an alternative to the to the phasein . . . the Board could have elected to 

revise the definition of ‘total assets’ in 

a manner enabling FICUs to effect the 

CECL day-one adjustments without 

undue adverse consequences.’’ 20 The 

commenter wrote that, while the 

NCUA’s reliance on the authority 

provided by section 216 of the FCU Act 

is understandable from an 

administrative standpoint, the agency 

should consider issuing using the 

alternative ‘‘total assets’’ framework to 

grant FICUs more options, such as the 

ability to choose a longer phase-in 

period. 

NCUA Response: The commenter is 

correct that the Board, in large measure, 

opted for the phase-in due to its ease of 

administration. Ensuring the 

administrative simplicity of its 

regulations is a significant consideration 

for the Board, especially during this 

pandemic period and the resulting 

economic fallout. Ease of 

administration, however, was only one 

of several considerations that factored 

into the Board’s decision. In making 

note of the statutory authority to redefine ‘‘total assets’’ in the preamble to 

the August 19, 2020, proposed rule, the 

Board simply wished to acknowledge 

the existence of an alternative legal 

basis for this rulemaking. A rule 

implementing this alternate statutory 

authority would have almost surely 

been more time-consuming and 

complex than the phase-in. The redefinition of ‘‘total assets’’ might have 

possible effects beyond CECL 

implementation to include the NCUA’s 

PCA system as a whole. Moreover, and 

as noted previously, the NCUA is 

statutorily charged to maintain PCA 

regulations that are ‘‘comparable’’ with 

section 38 of the FDI Act. A change to 

the definition of ‘‘total assets’’ would 

require careful analysis to ensure 

compliance with the statutory 

comparability requirement. Given these 

considerations, the Board continues to 

believe that a phase-in issued on the 

authority provided by section 216 of the 

FCU Act is the most effective, 

administratively simple, and quickest 

manner to mitigate the day-one impacts 

of CECL implementation on FICUs. 

Comment: Non-calendar fiscal years. 

One commenter objected that the 

proposed regulatory text measures the 

phase-in benefit by calendar dates and 

fails to account for FICUs that have noncalendar fiscal years. Specifically, the 

commenter wrote that the regulatory 

text refers to specific calendar date in 

the provisions for measuring the CECL 

transition amount. The commenter 

wrote that the calendar dates fail to 

capture the impact for FICUs with noncalendar fiscal years. The commenter 

wrote that this is inconsistent with the 

preamble, which references a credit 

union’s fiscal year and, in Section III.E., 

refers to a hypothetical FICU with a 

calendar fiscal year, impliedly 

acknowledging that FICUs may have a 

fiscal year other than a calendar fiscal 

year.21 The commenter also noted that 

the regulation issued by the other 

banking agencies defines the CECL 

transition amount based on the 

regulated entity’s fiscal year without 

referencing specific dates.22 The 

commenter suggested that to remedy 

this problem, the NCUA should follow 

the approach of the other banking 

agencies and define the CECL 

transitional amount by reference to a 

credit union’s fiscal year rather than set 

calendar dates. 

NCUA Response: As the commenter 

notes, the preamble to the proposed rule 

correctly provides that the transition 

period is based on the credit union’s 

fiscal year (which may be a noncalendar year in the case of statechartered credit unions) and not on 

specific dates. The commenter notes 

preamble language referencing the 

possibility of a non-calendar year fiscal 

year. Another example is the preamble 

language providing that ‘‘[t]he 

difference in retained earnings 

constitutes the transitional amount that 

would be phased-in to the net worth 

ratio calculation over the proposed 

transition period, which would be the 

three-year period (twelve quarters) 

beginning the first day of the fiscal year 

in which the FICU adopts CECL’’ 

(emphasis added).23 The Board agrees 

that the references to specific dates were 

potentially confusing. The Board has 

therefore removed the references to 

specific calendar dates, and the 

regulatory text now consistently refers 

to fiscal years. 

Comment: Calculation of transitional 

amount. One commenter noted that 

proposed § 702.703(b)(2) defines the 

transition amount for the fourth through 

twelfth quarters as the difference 

between a FICU’s retained earnings on 

December 31, 2023 and December 30, 

2024. The commenter wrote that the 

NCUA may have intended to refer to 

years 2022 and 2023 in this provision, 

since this measurement of the CECL 

transitional amount applies to Call 

Reports filed beginning on the first day 

in 2024, and it does not seem feasible 

to calculate the amount by reference to 

a figure that cannot be determined until 

the last day in 2024. 

NCUA Response: As noted in the 

preceding response, the NCUA has 

removed the references to specific 

calendar dates in the regulatory text. For 

purposes of calculating the fourth 

through twelfth quarters of the 

transition period, the regulatory text 

now provides that the CECL transitional 

amount is equal to the difference 

between the credit union’s retained 

earnings as of the end of the fiscal year 

in which the credit union adopts CECL 

and the credit union’s retained earnings 

as of the beginning of its next fiscal 

year. 

Comment: Examinations and stress 

testing. Several comments, while 

generally supportive of the proposed 

rule, had questions regarding the NCUA 

examination and stress testing protocols 

resulting from its implementation. One 

of these commenters suggested that the 

NCUA should consider implementing 

streamlined procedures for evaluating 

capital plans (including net worth 

restoration plans) when a FICU is 

expected to encounter capital stresses 

related to CECL adoption that persist 

after any applicable phase-in period. 

Another commenter warned that 


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24 Id. 

25 Id. 

26 Id. 

27 12 U.S.C. 1782(b)(6)(C)(ii). 

28 Id. 

29 Id. 

incorporating CECL into the stress 

testing regimen will increase capital 

volatility within the modelling and 

complicate stress testing estimations. 

The commenter urged the NCUA to 

continue discussions with covered 

FICUs and state regulators to ensure the 

regulatory stress testing framework can 

incorporate CECL when appropriate. 

NCUA Response: The NCUA will 

monitor and periodically assess the 

efficacy of the CECL transition phase-in 

provisions. The Board will take these 

comments regarding capital plans and 

stress testing under advisement and, 

should it be deemed necessary, issue 

supplemental guidance or implement 

revised procedures to assist FICUs in 

their implementation of the rule. 

Comment: Need for Call Report 

guidance. One of the commenters 

requested clarification on how the 

phased-in retained earnings would be 

reported on a FICU’s Call Report. For 

example, the commenter asked whether 

the Call Report will reflect the phase-in 

adjustment through the addition of a 

new field. 

NCUA Response: The Board notes 

that a new field has been provided in 

the Call Report for purposes of the 

phase-in. The NCUA will issue 

additional guidance and Call Report 

revisions as deemed necessary to assist 

FICUs in implementing this final rule. 

C. Comments Regarding GAAP 

Exemption for Small FICUs 

Comment: Future ability to phase-in 

CECL. Five commenters encouraged the 

NCUA to authorize a FICU 

accumulating $10 million, or greater, in 

assets after CECL has been implemented 

to phase-in the day-one negative impact. 

These commenters wrote that the onetime adjustment will be equally 

injurious to FICUs adopting CECL in the 

future and compensating for that is as 

important as doing so now. 

NCUA Response: The Board has not 

revised the rule in response to these 

commenters. The final rule is designed 

to facilitate a FICU’s transition to CECL 

without disrupting its ability to serve its 

members as a result of a PCA reclassification. Unlike FICUs that already 

(or soon will) exceed the $10 million 

asset threshold for GAAP compliance, 

other FICUs will have more time and be 

better positioned to adjust their asset 

growth. The Board expects that smaller 

FICUs will undertake the necessary 

analysis to determine the possible 

impact of coming into GAAP 

compliance in developing their business 

plans. As a result, the Board does not 

believe that the phase-in is necessary or 

appropriate for such FICUs. 

Comment: Transition phase-in for 

small federally insured state-chartered 

credit unions subject to GAAP. As 

provided in the preamble to the 

proposed rule, the exemption from the 

GAAP standards does not extend to 

smaller State-chartered FICUS that are 

required to comply with GAAP under 

State law.24 One commenter inquired 

about the ability of these state-chartered 

FICUs to use the transition phase-in. 

The commenter noted that the 

regulatory text does not specify if these 

credit union are eligible for the 

transition provision. The commenter 

recommended the NCUA’s final rule 

should make the proposed three-year 

phase-in available to FICUs that must 

follow GAAP, regardless of the size of 

the FICU. 

NCUA Response: The transition 

provisions were designed to apply to all 

FICUs that adopt CECL, irrespective of 

their asset size. As the preamble to the 

proposed rule makes clear, the only 

FICUs ‘‘not eligible for the phase in’’ are 

‘‘smaller FICUs that elect to use a nonGAAP measure.’’ 25 State-chartered 

FICUs that are required by state law to 

follow GAAP are prohibited from 

making such election. Accordingly, the 

Board intended them to be eligible for 

the transition relief provided by this 

rulemaking. The Board has revised the 

regulatory text to clarify the eligibility of 

these credit unions. The final rule 

clarifies that state-chartered FICUs with 

less than $10 million in assets and that 

are required by state law to comply with 

GAAP are eligible for the transition 

phase-in. 

Alternative GAAP structure for FICUs. 

The preamble to the proposed rule notes 

that ‘‘section 202 of the FCU Act could 

also potentially, as an alternative to the 

provisions [of the proposed rule], 

authorize the Board to provide a 

transition of the day-one effects of CECL 

implementation.’’ 26 This provision 

authorizes the Board to prescribe an 

alternative accounting principle to 

GAAP, so long as it is ‘‘no less 

stringent’’ than the GAAP principle it 

replaces.27

Four commenters wrote that the 

NCUA should consider the question of 

what constitutes an accounting standard 

that ‘‘is no less stringent’’ than GAAP 

for the purpose of expanding the scope 

of CECL relief. In doing so, commenters 

suggested that the NCUA might explore 

the possibility of a revised incurred loss 

methodology that allows more flexible 

evaluation of qualitative and 

environmental factors. The commenters 

also suggested that the NCUA should 

work directly with the FASB to advance 

an interpretation of the ‘‘no less 

stringent’’ requirement that recognizes 

the unique burden that CECL poses for 

FICUs. One of these commenters wrote 

that the NCUA should request that 

FASB recognize the incurred loss 

methodology as an appropriate 

alternative accounting principle under 

section 202 of the FCU Act. 

NCUA Response: The development of 

an alternate set of accounting standards 

that are ‘‘no less stringent’’ than GAAP 

would be a complex and timeconsuming endeavor necessitating 

consultations with FASB and other 

stakeholders. At this time, the Board 

believes that GAAP compliance is the 

most effective way to help ensure that 

financial reporting is transparent and 

consistent between FICUs. The Board, 

however, will continue to explore ways 

to alleviate the compliance burdens 

imposed by GAAP. As noted, the Board 

is committed to working with FASB, the 

other banking agencies, and appropriate 

stakeholders on a possible exemption 

for FICUs from the CECL accounting 

standards. 

Comment: Transition phase-in for 

small federally insured state-chartered 

credit unions subject to GAAP. As 

provided in the preamble to the 

proposed rule, the exemption from the 

GAAP standards does not extend to 

smaller state-chartered FICUS that are 

required to comply with GAAP under 

state law.28 One commenter inquired 

about the ability of these state-chartered 

FICUs to use the transition phase-in. 

The commenter noted that the 

regulatory text does not specify if these 

credit union are eligible for the 

transition provision. The commenter 

recommended the NCUA’s final rule 

should make the proposed three-year 

phase-in available to FICUs that must 

follow GAAP, regardless of the size of 

the FICU. 

NCUA Response: The transition 

provisions were designed to apply to all 

FICUs that adopt CECL, irrespective of 

their asset size. As the preamble to the 

proposed rule makes clear, the only 

FICUs ‘‘not eligible for the phase in’’ are 

‘‘smaller FICUs that elect to use a nonGAAP measure.’’ 29 State-chartered 

FICUs that are required by state law to 

follow GAAP are prohibited from 

making such election. Accordingly, the 

Board intended them to be eligible for 

the transition relief provided by this 

rulemaking. The Board has revised the 

regulatory text to clarify the eligibility of 


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30Supra note 1, at 50965. 

these credit unions. The final rule 

clarifies that state-chartered FICUs with 

less than $10 million in assets and that 

are required by state law to comply with 

GAAP are eligible for the transition 

phase-in. 

Comment: GAAP relief for federally 

insured state-chartered credit unions. 

As noted above, the preamble to the 

proposed rule provides that statechartered FICUs subject to state laws 

and regulations may be required to 

comply with GAAP or other accounting 

standards under applicable state 

requirements.30 One commenter wrote 

that approximately half the states either 

have explicit statutory or regulatory 

requirements for all FISCUs to comply 

with GAAP, or it is unclear whether 

such an express requirement exists. Two 

commenters suggested that the NCUA 

should work with the appropriate 

supervisory authorities to promote 

regulatory relief in states where the 

impediments are regulatory in nature. 

For those states with statutory mandates 

regarding GAAP adherence, the 

commenter asked that the NCUA pursue 

potential legislative fixes and to notify 

state legislative leaders of the exemption 

and the advantage federal credit unions 

would have over similarly sized FISCUs 

if not provided legislative relief. 

NCUA Response: The Board will 

continue to work with FASB and other 

stakeholders, including appropriate 

State regulators, to minimize the 

detrimental impacts of GAAP 

compliance on FICUs. The Board also 

notes that, as discussed in the preceding 

comment response, state-chartered 

FICUs with less than $10 million in 

assets and that are required by state law 

to comply with GAAP are eligible for 

the transition phase-in. 

V. Description of Final Rule 

A. New Subpart G to Part 702 

The final rule adds a new subpart G 

to the PCA regulations in 12 CFR part 

702, captioned ‘‘CECL Transition 

Provisions.’’ New subpart G applies to 

FICUs that meet the eligibility criteria 

specified in the final rule. 

Notwithstanding the CECL transition 

provisions, all other aspects of part 702 

would continue to apply. 

B. Eligibility for Transition Provisions 

FICUs that have not adopted CECL 

prior to their first fiscal year beginning 

after December 15, 2022 (the 

implementation date established by 

FASB) are eligible for the phase-in. The 

NCUA will use the phase-in to 

determine the FICU’s net worth category 

under § 702.102 or § 702.202 (for FICUs 

statutorily defined as ‘‘new’’). To be 

eligible for the transition provision, the 

FICU must record a reduction in 

retained earnings due to the adoption of 

CECL. 

C. NCUA Implementation of the 

Transition Provisions 

Eligible FICUs would not have the 

option of electing whether to opt-into 

(or out of) the transition provisions. 

Although this differs from the other 

banking agencies’ rule, it is consistent 

with the goal of this rulemaking to 

mitigate disruptions caused by CECL 

adoption. As noted, eligibility for the 

transition provision is limited to those 

FICUs for which the phase-in is truly 

necessary—that is, they will experience 

a reduction in retained earnings as a 

result of CECL. The Board believes that 

requiring these FICUs to affirmatively 

opt-into the transition provisions would 

constitute an unnecessary 

administrative exercise to confirm their 

already obvious need for the phase-in. 

Automatic implementation of the phasein by the NCUA will help to ensure its 

uniform application and that its benefits 

are provided to the greatest possible 

number of eligible FICUs. 

The final rule issued by the other 

banking agencies relies on banking 

organizations to calculate the phase-in 

amounts. In contrast, the NCUA will 

make the required phase-in calculations. 

As above, the Board has determined that 

this will help ensure the uniform 

implementation of the phase-in, as well 

as facilitate the accurate calculation of 

the transition amounts. 

D. Mechanics of the CECL Transition 

Provisions 

To calculate the transitional amount 

under the CECL transition provision, the 

NCUA will compare the differences in 

a FICU’s retained earnings between: (1) 

The FICU’s closing balance sheet 

amount for the fiscal year-end 

immediately prior to its adoption of 

CECL (pre-CECL amount); and (2) the 

FICU’s balance sheet amount as of the 

beginning of the fiscal year in which the 

FICU adopts CECL (post-CECL amount). 

The difference in retained earnings 

constitutes the transitional amount that 

would be phased-in to the net worth 

ratio calculation over the proposed 

transition period, which would be the 

three-year period (twelve quarters) 

beginning the first day of the fiscal year 

in which the FICU adopts CECL. 

Specifically, a FICU’s CECL transitional 

amount would be the difference 

between the pre-CECL and post-CECL 

amounts of retained earnings. 

The NCUA will phase-in the FICU’s 

CECL transitional amount. The NCUA 

would also phase-in the CECL 

transitional amount to the FICU’s total 

assets for purposes of the net worth 

ratio. Both the FICU’s retained earnings 

and total assets would be deemed 

increased by the CECL transitional 

amount. The CECL transitional amount 

would be phased-in over the transition 

period on a straight-line basis 

automatically as part of the Call Report. 

As noted, FICUs are currently 

required to commence implementation 

of the standard for fiscal years beginning 

after December 15, 2022. In determining 

the net worth ratio of a FICU, the NCUA 

will deem retained earnings and total 

assets as reported on the Call Report to 

be increased by 100 percent of the 

FICU’s CECL transitional amount during 

the first three reporting quarters of the 

fiscal year in which the FICU adopts 

CECL. The FICU may use this period to 

build capital and to make resulting 

material adjustments to its CECL 

transitional amount. The NCUA will 

base its subsequent calculations 

regarding the phase-in based on the 

CECL transitional amount reported by 

the FICU as of the fourth reporting 

quarter of the fiscal year in which the 

FICU adopts CECL, and further 

adjustments to the amount are not 

permitted. 

Beginning with the fourth reporting 

quarter of the fiscal year in which the 

FICU adopts CECL, the NCUA will 

deem retained earnings and total assets 

to be increased by 67 percent of the 

FICU’s CECL transitional amount. This 

percentage will be decreased to 33 

percent beginning with the fourth 

quarterly Call Report of the following 

fiscal year (the eighth reporting quarter 

of the FICU’s CECL implementation). 

Commencing with the twelfth reporting 

quarter of the FICU’s CECL 

implementation, the FICU’s net worth 

ratio will completely reflect the day-one 

effects of CECL. All other items 

remaining equal, this computation will 

result in a gradual phase-in of the CECL 

day-one effects. 

E. Example of Transition Schedule 

As an example of the proposed phasein, consider a hypothetical FICU that 

has a calendar fiscal year. On the 

closing balance sheet date immediately 

prior to adopting CECL, the FICU has 

$10 million in retained earnings and $1 

million of Allowance for Loan and 

Lease Losses (ALLL) (i.e., credit loss). 

On the opening balance sheet date of 

January 1, 2023, immediately after 

adopting CECL, the FICU determined it 

needs $1.2 million of allowance for 

credit losses. The FICU would recognize 


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31 12 U.S.C. 1790d(c)(2)(A). 

32 Division C of the Consolidated Appropriations 

Act, 2020; Public Law 116–93, approved December 

20, 2019. 

33Senate Report 116–111, at page 11. 

34U.S. Department of the Treasury, ‘‘The Current 

Expected Credit Loss Accounting Standard and 

Financial Institution Regulatory Capital’’ (2020). 

The report is available at: https://

home.treasury.gov/system/files/216/The-CECLAccounting-Standard-and-Financial-InstitutionRegulatory-Capital-Study-9-15-20.pdf. 

35 Id., at page 5. 

the adoption of CECL by recording a 

reduction in beginning retained 

earnings of $200,000. For each of the 

first three quarterly reporting periods in 

2023, the NCUA would deem both the 

FICU’s retained earnings and total assets 

to be increased by the full $200,000. 

Commencing with the fourth quarterly 

Call Report submitted in 2023 the 

FICU’s retained earnings and total assets 

would be deemed increased by $134,000 

($200,000 × 67 percent), for purposes of 

calculating the FICU’s net worth ratio. 

The $134,000 increase would remain 

constant for the first three quarters in 

2024. Starting with the fourth quarterly 

Call Report in 2024, retained earnings 

and total assets would be deemed 

increased by $66,000 ($200,000 × 33 

percent). Using the same mathematical 

equation, the $66,000 increase would 

remain constant for the first three 

quarters in 2025. Upon the FICU’s 

submission of its fourth quarterly report 

in 2025, there would be zero increase in 

retained earnings and total assets, thus 

the FICU’s net worth ratio will 

completely reflect the day-one effects of 

CECL. 

Table 1 presents the example above in 

tabular format: 

TABLE 1—EXAMPLE OF A CECL TRANSITION PROVISION SCHEDULE

[Calendar fiscal year] 

In thousands Transitional 

amount 

Transitional amounts applicable during each quarter of the 

transition period (12 quarters total) 

Quarters 1–3 

Quarters 4–7 Quarters 8–11 Quarter 12 

First three 

quarters 

of 2023 

Four quarters 

at 67% 

(4th quarter of 

2023 and first 

three quarters 

of 2024) 

Four quarters 

at 33% 

(4th quarter of 

2024 and first 

three quarters 

of 2025) 

Full 

recognition 

of day-one 

adjustment 

(commencing 

4th quarter 

of 2025) 

Increase retained earnings and total assets by the CECL transitional amount ... $200 $200 $134 $66 0 

F. Statutory Limit on Amount of Net 

Worth Ratio Change 

Section 216 of the FCU Act limits any 

change to the net worth ratio thresholds 

for each of the five net worth categories 

to ‘‘an amount that is equal to not more 

than the difference between the required 

minimum level most recently 

established by the Federal banking 

agencies and 4 percent of total assets 

(with respect to institutions regulated by 

those agencies).’’ 31 The limitation is not 

applicable to this final rule because, as 

noted above, the Board is following the 

lead of the other banking agencies and 

not modifying any specific net worth 

ratio threshold amount. Therefore, 

applying this element would be 

impracticable and would frustrate the 

purpose of the statutory provision. 

While the effect of the proposed 

regulatory amendments will be to adjust 

the calculation of the net worth ratios 

and, in some instances, the resultant net 

worth classifications, the actual numeric 

threshold amounts will remain the 

same. For example, a FICU will 

continue to be ‘‘well capitalized’’ if its 

net worth ratio is 7 percent or higher 

and it meets any applicable risk-based 

net worth requirement. 

G. NCUA Oversight 

For purposes of determining whether 

a FICU is in compliance with its PCA 

requirements, the NCUA will use the 

FICU’s net worth ratio as adjusted by 

the CECL transition provision. Through 

the supervisory process, the NCUA will 

continue to examine credit loss 

estimates and allowance balances 

regardless of whether the FICU is 

subject to the CECL transition provision. 

In addition, the NCUA may examine 

whether FICUs will have adequate 

amounts of capital at the expiration of 

their CECL transition provision period. 

H. Small FICU Determination of Charges 

for Loan Losses 

As discussed, section 202 of the FCU 

Act provides an exception for FICUs 

with less than $10 million in total assets 

to the general requirements that reports 

and statements filed with the Board 

comply with GAAP. As also noted 

above, the Board’s regulations in 

§ 702.402 require that charges for loan 

losses be made in accordance with 

GAAP and does not distinguish between 

the asset size of FICUs. The Board, 

however, is aware that compliance with 

GAAP may be burdensome for smaller 

FICUs. This difficulty is likely to be 

exacerbated with the adoption of CECL. 

Accordingly, the final rule provides that 

FICUs with total assets of less than $10 

million may make charges for loan 

losses either in accordance with GAAP 

or with any reasonable reserve 

methodology (incurred loss) provided it 

adequately covers known and probable 

loan losses. This provision will 

eliminate the adverse PCA 

consequences for smaller FICUs 

resulting from CECL, and these FICUs 

will not be subject to the phase-in 

procedure detailed above. 

The Board does note, however, that 

pursuant to section 202 state-chartered, 

federally insured credit unions subject 

to state laws and regulations may be 

required to comply with GAAP or other 

accounting standards under applicable 

State requirements. These credit unions 

are eligible for the phase-in. 

VI. Department of the Treasury Report 

The Senate Committee Report to the 

Financial Services and General 

Government Appropriations Act, 

2020,32 directs the Department of the 

Treasury, in consultation with the other 

banking agencies and the NCUA to 

‘‘conduct a study on the need, if any, for 

changes to regulatory capital 

requirements necessitated by CECL.’’ 33

The Department of the Treasury issued 

its report on September 15, 2020.34

While the report affirms the 

Department of the Treasury’s support 

for the goals of CECL, it also 

acknowledged that a ‘‘definitive 

assessment of the impact of CECL on 

regulatory capital is not currently 

feasible, in light of the state of CECL 

implementation across financial 

institutions and current market 

dynamics.’’ 35 Accordingly, the report 

provides that the Department of the 

Treasury ‘‘will continue to actively 

monitor CECL implementation and 


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36 Id. 

37 Id. 

38 Id., at pages 28–29. 

39 5 U.S.C. 603(a). 

40 80 FR 57512 (Sept. 24, 2015). 

41 44 U.S.C. 3501–3520. 

42Executive Order 13132 on Federalism was 

signed by former President Clinton on August 4, 

1999, and subsequently published in the Federal 

Register on August 10, 1999 (64 FR 43255). 

43Public Law 105–277, 112 Stat. 2681 (1998). 

44Public Law 104–121, 110 Stat. 147 (1996). 

45 5 U.S.C. 551. 

consult with relevant stakeholders, 

including the prudential regulators, 

FASB, and the SEC.’’ 36 Among other 

recommendations, the report suggests 

that the prudential regulators ‘‘monitor 

the use and impact of transitional relief 

granted, and extend or amend the relief, 

as necessary.’’ 37 Further, the report 

provides that ‘‘FASB, together with the 

prudential regulators, should examine 

the application of CECL to smaller 

lenders.’’ The report highlights FICUs 

and community banks in this regard, 

noting that the NCUA and the FDIC 

have separately asked for relief from 

FASB.38

This final rule is consistent with the 

Department of the Treasury’s report, 

particularly with respect to the 

recommendation regarding transitional 

relief. The Board will continue to assess 

the impacts of CECL on regulatory 

capital and will consider these— and 

any other future recommendations made 

by the Department of the Treasury—in 

taking further action to address the 

impacts of CECL implementation on the 

credit union industry. 

VII. Regulatory Procedures 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

requires the NCUA to prepare an 

analysis to describe any significant 

economic impact a regulation may have 

on a substantial number of small 

entities.39 For purposes of this analysis, 

the NCUA considers small credit unions 

to be those having under $100 million 

in assets.40 The Board fully considered 

the potential economic impacts of the 

proposed phase-in on small credit 

unions during the development of the 

final rule. For example, the rule would, 

to the extents authorized by statute, 

completely exempt some of the smallest 

FICUs (i.e., those with total assets less 

than $10 million) from the adverse 

effects of CECL. Accordingly, NCUA 

certifies that it would not have a 

significant economic impact on a 

substantial number of small credit 

unions. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(PRA) applies to rulemakings in which 

an agency by rule creates a new 

paperwork burden on regulated entities 

or increases an existing burden.41 For 

purposes of the PRA, a paperwork 

burden may take the form of a reporting, 

disclosure or recordkeeping 

requirement, each referred to as an 

information collection. The changes to 

part 702 may revise existing information 

collection requirements to the Call 

Report. Should changes be made to the 

Call Report, they will be addressed in a 

separate Federal Register notice. The 

revisions to the Call Report will be 

submitted for approval by the Office of 

Information and Regulatory Affairs at 

the Office of Management and Budget 

prior to their effective date. 

C. Executive Order 13132, on 

Federalism 

Executive Order 13132 42 encourages 

independent regulatory agencies to 

consider the impact of their actions on 

state and local interests. The NCUA, an 

independent regulatory agency, as 

defined in 44 U.S.C. 3502(5), voluntarily 

complies with the executive order to 

adhere to fundamental federalism 

principles. The final rule would not 

have substantial direct effects on the 

states, on the relationship between the 

national government and the states, or 

on the distribution of power and 

responsibilities among the various 

levels of government. The Board has 

therefore determined that this rule does 

not constitute a policy that has 

federalism implications for purposes of 

the executive order. 

D. Assessment of Federal Regulations 

and Policies on Families 

The NCUA has determined that this 

final rule will not affect family wellbeing within the meaning of Section 654 

of the Treasury and General 

Government Appropriations Act, 

1999.43

E. Small Business Regulatory 

Enforcement Fairness Act 

The Small Business Regulatory 

Enforcement Fairness Act of 1996 

(SBREFA) 44 generally provides for 

congressional review of agency rules. A 

reporting requirement is triggered in 

instances where the NCUA issues a final 

rule as defined by section 551 of the 

Administrative Procedure Act.45 An 

agency rule, in addition to being subject 

to congressional oversight, may also be 

subject to a delayed effective date if the 

rule is a ‘‘major rule.’’ The NCUA does 

not believe this rule is a ‘‘major rule’’ 

within the meaning of the relevant 

sections of SBREFA. As required by 

SBREFA, the NCUA has submitted this 

final rule to the Office of Management 

and Budget (OMB) for it to determine if 

the final rule is a ‘‘major rule’’ for 

purposes of SBREFA. The NCUA also 

will file appropriate reports with 

Congress and the Government 

Accountability Office so this rule may 

be reviewed. 

List of Subjects in 12 CFR Part 702 

Credit unions, Investments, Reporting 

and recordkeeping requirements. 

By the National Credit Union 

Administration Board, this 24th day of June 

2021. 

Melane Conyers-Ausbrooks, 

Secretary of the Board. 

For the reasons discussed above, the 

NCUA amends 12 CFR part 702 as 

follows: 

PART 702—CAPITAL ADEQUACY 

■ 1. The authority citation for part 702 

continues to read as follows: 

Authority: 12 U.S.C. 1766(a), 1790d. 

■ 2. Revise § 702.402(d)(1) to read as 

follows: 

§ 702.402 Full and Fair disclosure of 

financial condition. 

* * * * * 

(d) * * * 

(1)(i) Federally insured credit unions 

with total assets of $10 million or 

greater shall make charges for loan 

losses in accordance with generally 

accepted accounting principles (GAAP); 

(ii) Federally insured credit unions 

with total assets of less than $10 million 

shall make charges for loan losses in 

accordance either with either: 

(A) Any reasonable reserve 

methodology (incurred loss) provided it 

adequately covers known and probable 

loan losses; or 

(B) In the case of Federally insured, 

State-chartered credit unions, any other 

applicable standard under State law or 

regulation; 

* * * * * 

■ 3. Add subpart G, consisting of 

§§ 702.701 through 702.703. to read as 

follows: 

Subpart G—CECL Transition 

Provisions 

Sec. 

702.701 Authority, purpose, and scope. 

702.702 Definitions. 

702.703 CECL transition provisions. 

§ 702.701 Authority, purpose, and scope. 

(a) Authority. This subpart is issued 

by the National Credit Union 

Administration Board pursuant to 

section 216 of the Federal Credit Union 


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Federal Register / Vol. 86, No. 124 / Thursday, July 1, 2021 / Rules and Regulations 34933 

Act, 12 U.S.C. 1790d, as added by 

section 301 of the Credit Union 

Membership Access Act, Public Law 

105–219, 112 Stat. 913 (1998). 

(b) Purpose. This subpart provides for 

the phase in of the adverse effects on the 

regulatory capital of federally insured 

credit unions that may result from the 

adoption of the current expected credit 

losses (CECL) accounting methodology. 

(c) Scope. (1) The transition 

provisions of this subpart apply to 

Federally insured credit unions, 

whether Federally or State-chartered, 

including credit unions defined as 

‘‘new’’ pursuant to section 1790d(b)(2) 

that make charges for loan losses in 

accordance with: 

(i) Generally accepted accounting 

principles (GAAP) under 

§ 702.402(d)(1)(i); or 

(ii) In the case of Federally-insured, 

State-chartered credit unions, any other 

applicable standard under State law or 

regulation under § 702.402(d)(1)(ii)(B). 

(2) The transition provisions of this 

subpart do not apply to Federallyinsured credit unions, whether 

Federally or State-chartered, including 

credit unions defined as ‘‘new’’ 

pursuant to section 1790d(b)(2), that 

make charges for loan losses using a 

reasonable reserve methodology under 

§ 702.402(d)(1)(ii)(A). 

§ 702.702 Definitions. 

In addition to the definitions set forth 

in § 702.2, the following definitions 

apply to this subpart: 

Current Expected Credit Losses 

(CECL) means the current expected 

credit losses methodology under GAAP. 

CECL transitional amount means the 

decrease of a credit union’s retained 

earnings resulting from its adoption of 

CECL, as determined pursuant to 

§ 702.703(b). 

Transition period means the 12- 

quarter reporting period beginning the 

first day of the fiscal year in which the 

credit union adopts CECL. 

§ 702.703 CECL transition provisions. 

(a) Eligibility—The NCUA shall use 

the transition provisions of this subpart 

in determining a credit union’s net 

worth category under this part, as 

applicable, if: 

(1) The credit union has not adopted 

CECL before its first fiscal year 

beginning after December 15, 2022; and 

(2) The credit union records a 

reduction in retained earnings due to 

the adoption of CECL. 

(b) Determination of CECL transition 

amount. (1) For purposes of calculating 

the first three quarters of the transition 

period, as described in paragraph (c)(1) 

of this section, the CECL transitional 

amount is equal to the difference 

between the credit union’s retained 

earnings as of the beginning of the fiscal 

year in which the credit union adopts 

CECL and the credit union’s retained 

earnings as of the closing of the fiscal 

year immediately prior to the credit 

union’s adoption of CECL. 

(2) For purposes of calculating the 

fourth through twelfth quarters of the 

transition period, as described in 

paragraphs (c)(2) and (c)(3) of this 

section, the CECL transitional amount is 

equal to the difference between the 

credit union’s retained earnings as of 

the end of the fiscal year in which the 

credit union adopts CECL and the credit 

union’s retained earnings as of the 

beginning of its next fiscal year. 

(c) Calculation of CECL transition 

provision. In determining the net worth 

category of a credit union as provided 

in paragraph (a) of this section, the 

NCUA shall: 

(1) Increase retained earnings and 

total assets as reported on the Call 

Report for purposes of the net worth 

ratio by 100 percent of its CECL 

transitional amount during the first 

three quarters of the transition period 

(first three reporting quarters of the 

fiscal year in which the credit union 

adopts CECL); 

(2) Increase retained earnings and 

total assets as reported on the Call 

Report for purposes of the net worth 

ratio by sixty-seven percent of its CECL 

transitional amount during the second 

four quarters of the transition period 

(fourth reporting quarter of the fiscal 

year in which the credit union adopts 

CECL and first three reporting quarters 

of the next fiscal year); and 

(3) Increase retained earnings and 

total assets as reported on the Call 

Report for purposes of the net worth 

ratio by thirty-three percent of its CECL 

transitional amount during the final four 

quarters of the transition period. 

[FR Doc. 2021–13907 Filed 6–30–21; 8:45 am] 

BILLING CODE 7535–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2021–0540; Project 

Identifier MCAI–2021–00694–T; Amendment 

39–21635; AD 2021–14–08] 

RIN 2120–AA64 

Airworthiness Directives; Airbus SAS 

Airplanes 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final rule; request for 

comments. 

SUMMARY: The FAA is adopting a new 

airworthiness directive (AD) for all 

Airbus SAS Model A319–151N, A319– 

153N, A319–171N, A320–251N, A320– 

252N, A320–253N, A320–271N, A320– 

272N, A320–273N, A321–251N, A321– 

251NX, A321–252N, A321–252NX, 

A321–253N, A321–253NX, A321–271N, 

A321–271NX, A321–272N and A321– 

272NX airplanes. This AD was 

prompted by reports of an increasing 

number of operational disruptions due 

to airspeed discrepancies. This AD 

requires revising the existing airplane 

flight manual (AFM) to include a 

procedure to reinforce the airspeed 

check during the take-off phase and 

provide instructions to abort take-off in 

certain cases, as specified in a European 

Union Aviation Safety Agency (EASA) 

AD, which is incorporated by reference. 

The FAA is issuing this AD to address 

the unsafe condition on these products. 

DATES: This AD becomes effective July 

1, 2021. 

The Director of the Federal Register 

approved the incorporation by reference 

of a certain publication listed in this AD 

as of July 1, 2021. 

The FAA must receive comments on 

this AD by August 16, 2021. 

ADDRESSES: You may send comments, 

using the procedures found in 14 CFR 

11.43 and 11.45, by any of the following 

methods: 

• Federal eRulemaking Portal: Go to 

https://www.regulations.gov. Follow the 

instructions for submitting comments. 

• Fax: 202–493–2251. 

• Mail: U.S. Department of 

Transportation, Docket Operations, M– 

30, West Building Ground Floor, Room 

W12–140, 1200 New Jersey Avenue SE, 

Washington, DC 20590. 

• Hand Delivery: Deliver to Mail 

address above between 9 a.m. and 5 

p.m., Monday through Friday, except 

Federal holidays. 

For EASA material incorporated by 

reference (IBR) in this AD, contact 

EASA, Konrad-Adenauer-Ufer 3, 50668 

Cologne, Germany; telephone +49 221 

8999 000; email ADs@easa.europa.eu; 

internet www.easa.europa.eu. You may 

find this IBR material on the EASA 

website at https://ad.easa.europa.eu. 

You may view this IBR material at the 

FAA, Airworthiness Products Section, 

Operational Safety Branch, 2200 South 

216th St., Des Moines, WA. For 

information on the availability of this 

material at the FAA, call 206–231–3195. 

It is also available in the AD docket on 

the internet at https://

www.regulations.gov by searching for 


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