The FDIC finalized an interagency plan implementing a transition period for recognizing credit losses under the Current Expected Credit Loss accounting standard set to take effect as early as 2020.
Under the revised framework, banks will recognize credit-loss estimates at initial recognition with adjustments as overall credit and loan-specific conditions change. The standard could have a large negative cumulative effect adjustment on the opening balance of retained earnings and common equity tier 1 capital.
The final rule will give banks the one-time option to transition the cumulative effect adjustment over a three-year period. Banks that choose to elect the option will reverse 75 percent of the adjustment in year one, 50 percent in year two, and 25 percent in year three.
ICBA supported the action to provide regulatory capital relief, though it advocated extending the transition period from three to five years. ICBA for years has worked closely with FASB and the regulatory agencies to limit the negative impact of CECL on community banks.
Read the Final Rule