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Federal Register / Vol. 86, No. 124 / Thursday, July 1, 2021 / Rules and Regulations FOR FURTHER INFORMATION CONTACT:

Policy and Accounting: Alison L. Clark, Chief Accountant, Office of Examinations and Insurance, at 703
5186360; Legal: Ariel Pereira, Senior Staff Attorney, Office of General Counsel, at 703 5482778; 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 Boards August 19, 2020, Proposed Rule III. Legal Authority A. The Boards 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
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I. This Final Rule On July 30, 2020, the NCUA Board Board proposed amending the agencys 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 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-2020-0819/pdf/2020-16987.pdf.

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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 Boards responses to these issues, including the Boards 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, 2 CECL applies to all credit unions, irrespective of whether the credit union is federally insured or whether it is chartered federally or under state law.
3 FASB 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
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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.
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.
4 FASB ASU No. 201613, Financial InstrumentsCredit Losses Topic 326, Measurement of Credit Losses on Financial Instruments, June 2016, page 5. FASB ASU No.
201613 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. 116136 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 COVID19 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.
5 See 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.

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