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Federal Register / Vol. 86, No. 124 / Thursday, July 1, 2021 / Rules and Regulations
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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 Actthe 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 threeyear 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 as 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 NCUAs 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 Boards decision. In making note of the statutory authority to redefine total assets in the preamble to the August 19, 2020, proposed rule, the 17 12 U.S.C. 1790db1A. 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 102242, 105 Stat.
2236 1991.
18 Supra, note 10.
19 Supra, note 6.
20 Supra note 1 at 5096650967.

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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 NCUAs 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 unions 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 entitys 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 unions 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 unions fiscal year which may be a noncalendar year in the case of statechartered credit unions and not on 21 Id.
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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 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
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 702.703b2 defines the transition amount for the fourth through twelfth quarters as the difference between a FICUs 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 unions retained earnings as of the end of the fiscal year in which the credit union adopts CECL
and the credit unions 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 23 Supra
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