Regulatory Alerts2020-03-31 | 2020-06770Regulatory Capital Rule: Revised Transition of the Current Expected Credit Losses Methodology for Allowances
The OCC, Federal Reserve, and FDIC issued an interim final rule providing banking organizations that adopt CECL before the end of 2020 a five-year transition option to delay and phase out CECL’s estimated impact on regulatory capital. The rule introduces a uniform 25 percent scaling factor to approximate the difference between CECL and incurred loss methodologies, allowing institutions to temporarily reduce capital charges while maintaining lending capacity during the COVID-19 economic downturn. This revised transition mechanism remains available alongside existing three-year options and applies to eligible institutions electing the change in their March 31, 2020 Call Report or FR Y–9C.
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