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

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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 FICUs 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.

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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 NCUAs 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 24 Id.

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 NCUAs 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
25 Id.
26 Id.
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