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Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations
incurred loss methodologys effect on regulatory capital, during the first two years of CECL adoption.24
Certain financial measures that are used in the scorecard to determine assessment rates for large or highly complex banks are calculated using both Tier 1 capital and reserves. Tier 1
capital is reported in Call Report Schedule RCR, Part I, item 26, and for banks that elect either the three-year transition provision contained in the 2019 CECL rule or the five-year transition provision contained in the 2020 CECL rule, Tier 1 capital includes due to adjustments to the amount of retained earnings reported on the balance sheet the applicable portion of the CECL transitional amount or modified CECL transitional amount.
For deposit insurance assessment purposes, reserves are calculated using the amount reported in Call Report Schedule RC, item 4.c, Allowance for loan and lease losses. For all banks that have adopted CECL, this Schedule RC
line item reflects the allowance for credit losses on loans and leases.25
The issue of double counting arises in certain financial measures used to determine assessment rates for large or highly complex banks that are calculated using both Tier 1 capital and reserves because the allowance for credit losses on loans and leases is included during the transition period in both reserves and, as a portion of the CECL or modified CECL transitional amount, Tier 1 capital. For banks that elect either the three-year transition provision contained in the 2019 CECL
rule or the five-year transition provision contained in the 2020 CECL rule, the CECL transitional amounts, as defined in section 301 of the regulatory capital rules, additionally include the effect on retained earnings, net of tax effect, of establishing allowances for credit losses in accordance with the CECL
methodology on HTM debt securities, other financial assets measured at amortized cost, and off-balance sheet credit exposures as of the beginning of the fiscal year of adoption plus, for banks electing the 2020 CECL rule, the change during the first two years of the transition period in reported AACLs for HTM debt securities, other financial assets measured at amortized cost, and off-balance sheet credit exposures relative to the balances of these AACLs as of the beginning of the fiscal year of CECL adoption multiplied by 25
24 See 84 FR 4228 Feb. 14, 2019 and 85 FR
61580 Sept. 30, 2020.
25 The allowance for credit losses on loans and leases held for investment also is reported in item 7, column A, of Call Report Schedule RIB, Part II, Changes in Allowances for Credit Losses.

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percent. The applicable portions of the CECL transitional amounts attributable to allowances for credit losses on HTM
debt securities, other financial assets measured at amortized cost, and offbalance sheet credit exposures are included in Tier 1 capital only and are not double counted with reserves for deposit insurance assessment purposes.
The CECL effective dates assigned by ASU 201613 as most recently amended by ASU No. 201910, the optional temporary relief from complying with CECL afforded by the CARES Act and as extended by the Consolidated Appropriations Act, 2021, and the transitions provided for under the 2019
CECL rule and 2020 CECL rule, provide that all banks will have completely reflected in regulatory capital the dayone effects of CECL plus, if applicable, an estimate of CECLs effect on regulatory capital, relative to the incurred loss methodologys effect on regulatory capital, during the first two years of CECL adoption by December 31, 2026. As a result, and as discussed below, the amendments to the deposit insurance assessment system and changes to reporting requirements pursuant to this final rule will be applicable only while the temporary regulatory capital relief described above, or any potential future amendment that may affect the 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.
F. The Proposed Rule On December 7, 2020, the FDIC
published in the Federal Register a notice of proposed rulemaking the proposed rule, or proposal 26 that would amend the risk-based deposit insurance assessment system applicable to all large IDIs, including highly complex IDIs, to address the temporary deposit insurance assessment effects resulting from certain optional regulatory capital transition provisions relating to the implementation of the CECL methodology. To address these temporary deposit insurance assessment effects, in calculating certain measures used in the scorecard for determining deposit insurance assessment rates for large or highly complex banks, the FDIC
proposed to remove the applicable portions of the CECL transitional amounts added to retained earnings for regulatory capital purposes and attributable to the allowance for credit losses on loans and leases held for investment under the transitions 26 85

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FR 78794 Dec. 7, 2020.

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provided for under the 2019 and 2020
CECL rules. Specifically, in certain scorecard measures which are calculated using the sum of Tier 1
capital and reserves, the FDIC proposed to remove a specified portion of the CECL transitional amount or modified CECL transitional amount that is added to retained earnings for regulatory capital purposes when determining deposit insurance assessment rates. The FDIC also proposed to adjust the calculation of the loss severity measure to remove the double counting of a specified portion of the CECL
transitional amounts for a large or highly complex bank.
The FDIC did not receive any comment letters in response to the proposal and is adopting the proposed rule as final without change.
III. The Final Rule A. Summary As proposed, in certain scorecard measures which are calculated using the sum of Tier 1 capital and reserves, the FDIC will remove a specified portion of the CECL transitional amounts that is added to retained earnings for regulatory capital purposes when determining deposit insurance assessment rates. The FDIC also will adjust the calculation of the loss severity measure to remove the double counting of a specified portion of the CECL transitional amounts for a large or highly complex bank.
Absent the adjustments to the calculation of certain financial measures in the large or highly complex bank scorecards under this final rule, the inclusion of the applicable portions of the CECL transitional amounts added to retained earnings for regulatory capital purposes and attributable to the allowance for credit losses on loans and leases held for investment in regulatory capital and the implementation of CECL
in calculating reserves would result in temporary double counting of a portion of the CECL transitional amounts in select financial measures used to determine assessment rates for large or highly complex banks. For example, in the denominator of the higher-risk assets to Tier 1 capital and reserves ratio, the applicable portions of the CECL transitional amounts added to retained earnings for regulatory capital purposes and attributable to the allowance for credit losses on loans and leases held for investment would be included in Tier 1 capital, and these portions also would be reflected in the calculation of reserves using the allowance amount reported in Call Report Schedule RC, item 4.c. If left
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