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Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations
calculation of CECL transitional amounts and the double counting of these amounts for deposit insurance assessment purposes, is reflected in the regulatory reports of banks.
II. Background A. Deposit Insurance Assessments Pursuant to Section 7 of the FDI Act, the FDIC has established a risk-based assessment system in Part 327 of its Rules and Regulations.5 In 2006, the FDIC adopted a final rule that created different risk-based assessment systems for large IDIs and small IDIs that combined supervisory ratings with other risk measures to differentiate risk and determine assessment rates.6 In 2011, the FDIC amended the risk-based assessment system applicable to large IDIs to, among other things, better capture risk at the time the institution assumes the risk, to better differentiate risk among large IDIs during periods of good economic and banking conditions based on how they would fare during periods of stress or economic downturns, and to better take into account the losses that the FDIC may incur if a large IDI fails.7
The FDIC charges all IDIs an assessment amount for deposit insurance equal to the IDIs deposit insurance assessment base multiplied by its risk-based assessment rate.8 An IDIs assessment base and assessment rate are determined each quarter based on supervisory ratings and information collected in the Consolidated Reports of Condition and Income Call Report or the Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks FFIEC 002, as appropriate.
Generally, an IDIs assessment base equals its average consolidated total assets minus its average tangible equity.9
An IDIs assessment rate is calculated using different methods based on whether the IDI is a small, large, or highly complex bank.10 A large or highly complex bank is assessed using a scorecard approach that combines CAMELS ratings and certain forwardlooking financial measures to assess the risk that the bank poses to the DIF.11
The score that each large or highly complex bank receives is used to determine its deposit insurance assessment rate. One scorecard applies 5 12

CFR part 327.
71 FR 69282 Nov. 30, 2006.
7 See 76 FR 10672 Feb. 25, 2011.
8 See 12 CFR 327.3b1.
9 See 12 CFR 327.5.
10 See 12 CFR 327.16a and b.
11 See 12 CFR 327.16b; see also 76 FR 10672
Feb. 25, 2011 and 77 FR 66000 Oct. 31, 2012.
6 See
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to most large IDIs and another applies to highly complex banks. Both scorecards use quantitative financial measures that are useful in predicting a large or highly complex banks longterm performance.12
As described in more detail below, the FDIC is finalizing amendments to the assessment regulations to remove the double counting of a specified portion of the CECL transitional amounts in the calculation of the loss severity measure and certain other financial measures that are calculated by summing Tier 1 capital and reserves, which are used to determine assessment rates for large or highly complex banks.
B. The Current Expected Credit Losses Methodology In 2016, the Financial Accounting Standards Board FASB issued Accounting Standards Update ASU
No. 201613, Financial Instruments Credit Losses, Topic 326, Measurement of Credit Losses on Financial Instruments.13 The ASU resulted in significant changes to credit loss accounting under U.S. generally accepted accounting principles GAAP.
The revisions to credit loss accounting under GAAP included the introduction of CECL, which replaces the incurred loss methodology for financial assets measured at amortized cost. For these assets, CECL requires banking organizations to recognize lifetime expected credit losses and to incorporate reasonable and supportable forecasts in developing the estimate of lifetime expected credit losses, while also maintaining the current requirement that banking organizations consider past events and current conditions.
CECL allowances 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, the 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 12 See
76 FR 10688. The FDIC uses a different scorecard for highly complex IDIs because those institutions are structurally and operationally complex, or pose unique challenges and risks in case of failure. 76 FR 10695.
13 ASU 201613 covers measurement of credit losses on financial instruments and includes three subtopics within Topic 326: i Subtopic 32610
Financial InstrumentsCredit LossesOverall; ii Subtopic 32620: Financial InstrumentsCredit LossesMeasured at Amortized Cost; and iii Subtopic 32630: Financial InstrumentsCredit LossesAvailable-for-Sale Debt Securities.

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the latter allowances presented as liabilities.14 These exposures will be within the scope of CECL. In addition, CECL applies to credit losses on heldto-maturity HTM debt securities. ASU
201613 also introduces new requirements for available-for-sale 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.
The credit loss allowances attributable to debt securities are separate from the credit loss allowances attributable to loans and leases.
C. The 2019 CECL Rule 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. A banking organizations implementation of CECL will affect its retained earnings, deferred tax assets DTAs, allowances, and, as a result, its regulatory capital ratios.
In recognition of the potential for the implementation of CECL to affect regulatory capital ratios, on February 14, 2019, the FDIC, the Office of the Comptroller of the Currency OCC, and the Board of Governors of the Federal Reserve System Board collectively, the agencies issued a final rule that revised certain regulations, including the agencies regulatory capital regulations capital rule,15 to account for the aforementioned changes to credit loss accounting under GAAP, including CECL 2019 CECL rule.16 The 2019
CECL rule includes a transition provision that allows banking organizations to phase in over a threeyear period the day-one adverse effects of CECL on their regulatory capital ratios.
14 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 FDIC notes that credit losses for off-balance sheet credit exposures that are unconditionally cancellable by the issuer are not recognized under CECL.
15 12 CFR part 3 OCC; 12 CFR part 217 Board;
12 CFR part 324 FDIC.
16 84 FR 4222 Feb. 14, 2019.

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