[Federal Register Volume 83, Number 93 (Monday, May 14, 2018)]
[Proposed Rules]
[Pages 22312-22339]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-08999]



[[Page 22311]]

Vol. 83

Monday,

No. 93

May 14, 2018

Part II





Department of Treasury





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Office of the Comptroller of the Currency





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 Federal Reserve System





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Federal Deposit Insurance Corporation





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12 CFR Parts 1, 3, 5, et al.





Regulatory Capital Rules: Implementation and Transition of the Current 
Expected Credit Losses Methodology for Allowances and Related 
Adjustments to the Regulatory Capital Rules and Conforming Amendments 
to Other Regulations; Proposed Rules

Federal Register / Vol. 83 , No. 93 / Monday, May 14, 2018 / Proposed 
Rules

[[Page 22312]]


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DEPARTMENT OF TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 1, 3, 5, 23, 24, 32, 34, and 46

[Docket ID OCC-2018-0009]
RIN 1557-AE32

FEDERAL RESERVE SYSTEM

12 CFR Parts 208, 211, 215, 217, 223, 225, and 252

[Regulation Q; Docket No. R-1605]
RIN 7100-AF04

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 324, 325, 327, 347, and 390

RIN 3064-AE74


Regulatory Capital Rules: Implementation and Transition of the 
Current Expected Credit Losses Methodology for Allowances and Related 
Adjustments to the Regulatory Capital Rules and Conforming Amendments 
to Other Regulations

AGENCY: Office of the Comptroller of the Currency (OCC), the Board of 
Governors of the Federal Reserve System (Board), and the Federal 
Deposit Insurance Corporation (FDIC).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of the Comptroller of the Currency, the Board of 
Governors of the Federal Reserve System, and the Federal Deposit 
Insurance Corporation (collectively, the agencies) are inviting public 
comment on a joint proposal to address changes to U.S. generally 
accepted accounting principles (U.S. GAAP) described in Accounting 
Standards Update No. 2016-13, Topic 326, Financial Instruments--Credit 
Losses (ASU 2016-13), including banking organizations' implementation 
of the current expected credit losses methodology. Specifically, the 
proposal would revise the agencies' regulatory capital rules to 
identify which credit loss allowances under the new accounting standard 
are eligible for inclusion in regulatory capital and to provide banking 
organizations the option to phase in the day-one adverse effects on 
regulatory capital that may result from the adoption of the new 
accounting standard. The proposal also would amend certain regulatory 
disclosure requirements to reflect applicable changes to U.S. GAAP 
covered under ASU 2016-13. In addition, the agencies are proposing to 
make amendments to their stress testing regulations so that covered 
banking organizations that have adopted ASU 2016-13 would not include 
the effect of ASU 2016-13 on their provisioning for purposes of stress 
testing until the 2020 stress test cycle. Finally, the agencies are 
proposing to make conforming amendments to their other regulations that 
reference credit loss allowances.

DATES: Comments must be received by July 13, 2018.

ADDRESSES: Comments should be directed to:
    OCC: You may submit comments to the OCC by any of the methods set 
forth below. Commenters are encouraged to submit comments through the 
Federal eRulemaking Portal or email, if possible. Please use the title 
``Regulatory Capital Rules: Implementation and Transition of the 
Current Expected Credit Losses Methodology for Allowances and Related 
Adjustments to the Regulatory Capital Rules and Conforming Amendments 
to Other Regulations'' to facilitate the organization and distribution 
of the comments. You may submit comments by any of the following 
methods:
     Federal eRulemaking Portal--``Regulations.gov'': Go to 
www.regulations.gov. Enter ``Docket ID OCC-2018-0009'' in the Search 
Box and click ``Search.'' Click on ``Comment Now'' to submit public 
comments.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov, including instructions for 
submitting public comments.
     Email: regs.comments@occ.treas.gov.
     Mail: Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency, 400 7th Street SW, suite 3E-
218, Washington, DC 20219.
     Hand Delivery/Courier: 400 7th Street SW, suite 3E-218, 
Washington, DC 20219.
     Fax: (571) 465-4326.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2018-0009'' in your comment. In general, the OCC will 
enter all comments received into the docket and publish them on the 
Regulations.gov website without change, including any business or 
personal information that you provide such as name and address 
information, email addresses, or phone numbers. Comments received, 
including attachments and other supporting materials, are part of the 
public record and subject to public disclosure. Do not include any 
information in your comment or supporting materials that you consider 
confidential or inappropriate for public disclosure.
    You may review comments and other related materials that pertain to 
this rulemaking action by any of the following methods:
     Viewing Comments Electronically: Go to 
www.regulations.gov. Enter ``Docket ID OCC-2018-0009'' in the Search 
box and click ``Search.'' Click on ``Open Docket Folder'' on the right 
side of the screen. Comments and supporting materials can be viewed and 
filtered by clicking on ``View all documents and comments in this 
docket'' and then using the filtering tools on the left side of the 
screen.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov. The docket may be viewed 
after the close of the comment period in the same manner as during the 
comment period.
    Viewing Comments Personally: You may personally inspect comments at 
the OCC, 400 7th Street SW, Washington, DC 20219. For security reasons, 
the OCC requires that visitors make an appointment to inspect comments. 
You may do so by calling (202) 649-6700 or, for persons who are hearing 
impaired, TTY, (202) 649-5597. Upon arrival, visitors will be required 
to present valid government-issued photo identification and submit to 
security screening in order to inspect comments.
    Board: You may submit comments, identified by Docket No. R-1605 and 
RIN 7100-AF04, by any of the following methods:
     Agency Website: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Email: regs.comments@federalreserve.gov. Include docket 
number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Ann E. Misback, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW, 
Washington, DC 20551. All public comments are available from the 
Board's website at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, unless modified for technical reasons or 
to remove sensitive PII at the commenter's request. Public comments may 
also be viewed electronically or in paper form in Room 3515, 1801 K 
Street NW (between 18th and 19th Streets NW), Washington, DC 20006 
between 9:00 a.m. and 5:00 p.m. on weekdays.

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    FDIC: You may submit comments, identified by RIN 3064-AE74, by any 
of the following methods:
     Agency Website: https://www.fdic.gov/regulations/laws/federal/. Follow instructions for submitting comments on the Agency 
website.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th 
Street NW, Washington, DC 20429.
     Hand Delivery/Courier: Comments may be hand-delivered to 
the guard station at the rear of the 550 17th Street Building (located 
on F Street) on business days between 7:00 a.m. and 5:00 p.m.
     Email: comments@FDIC.gov. Include RIN 3064-AE74 on the 
subject line of the message.
     Public Inspection: All comments received must include the 
agency name and RIN 3064-AE74 for this rulemaking. All comments 
received will be posted without change to http://www.fdic.gov/regulations/laws/federal/, including any personal information provided. 
Paper copies of public comments may be ordered from the FDIC Public 
Information Center, 3501 North Fairfax Drive, Room E-1002, Arlington, 
VA 22226, or by telephone at (877) 275-3342 or (703) 562-2200.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Mark Ginsberg, Senior Risk Expert, (202) 649-6983; or Kevin 
Korzeniewski, Counsel, Legislative and Regulatory Activities Division, 
(202) 649-5490; or for persons who are hearing impaired, TTY, (202) 
649-5597.
    Board: Constance M. Horsley, Deputy Associate Director, (202) 452-
5239; Juan Climent, Manager, (202) 872-7526; Andrew Willis, Senior 
Supervisory Financial Analyst, (202) 912-4323; or Noah Cuttler, Senior 
Financial Analyst, (202) 912-4678, Division of Supervision and 
Regulation; or Benjamin W. McDonough, Assistant General Counsel, (202) 
452-2036; David W. Alexander, Counsel, (202) 452-2877; or Asad Kudiya, 
Senior Attorney, (202) 475-6358, Legal Division, Board of Governors of 
the Federal Reserve System, 20th and C Streets NW, Washington, DC 
20551. For the hearing impaired only, Telecommunication Device for the 
Deaf, (202) 263-4869.
    FDIC: Benedetto Bosco, Chief, bbosco@fdic.gov; David Riley, Senior 
Policy Analyst, dariley@fdic.gov; Richard Smith, Capital Markets Policy 
Analyst, rsmith@fdic.gov; Michael Maloney, Senior Policy Analyst, 
mmaloney@fdic.gov; Capital Markets Branch, Division of Risk Management 
Supervision, regulatorycapital@fdic.gov, (202) 898-6888; or Michael 
Phillips, Acting Supervisory Counsel, mphillips@fdic.gov; Catherine 
Wood, Counsel, cawood@fdic.gov; or Benjamin Klein, Counsel, 
bklein@fdic.gov; Supervision Branch, Legal Division, Federal Deposit 
Insurance Corporation, 550 17th Street NW, Washington, DC 20429.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background
    A. Overview of Changes to U.S. Generally Accepted Accounting 
Principles
    B. Regulatory Capital
II. Description of the Proposed Rule
    A. Proposed Revisions to the Capital Rules To Reflect the Change 
in U.S. GAAP
    1. Introduction of Allowance for Credit Losses as a Newly 
Defined Term
    2. Definition of Carrying Value
    i. Available-for-Sale Debt Securities
    ii. Purchased Credit-Deteriorated Assets
    3. Additional Considerations
    B. CECL Transition Provision
    1. Election of the Optional CECL Transition Provision
    2. Mechanics of the CECL Transition Provision
    3. CECL Transition Provision Time Period
    4. Business Combinations
    5. Supervisory Oversight
    C. Additional Requirements for Advanced Approaches Banking 
Organizations
    D. Disclosures and Regulatory Reporting
    E. Conforming Changes to Other Agency Regulations
    1. OCC Regulations
    2. Board Regulations
    3. FDIC Regulations
    F. Additional Requests for Comments
III. Regulatory Analyses
    A. Paperwork Reduction Act
    B. Regulatory Flexibility Act
    C. Plain Language
    D. OCC Unfunded Mandates Reform Act of 1995
    E. Riegle Community Development and Regulatory Improvement Act 
of 1994

I. Background

A. Overview of Changes to U.S. Generally Accepted Accounting Principles

    In June 2016, the Financial Accounting Standards Board (FASB) 
issued Accounting Standards Update (ASU) No. 2016-13, Topic 326, 
Financial Instruments--Credit Losses,\1\ which revises the accounting 
for credit losses under U.S. generally accepted accounting principles 
(U.S. GAAP). ASU No. 2016-13 introduces the current expected credit 
losses methodology (CECL), which replaces the incurred loss methodology 
for financial assets measured at amortized cost, and the term, 
purchased credit-deteriorated (PCD) assets, which replaces the term, 
purchased credit-impaired (PCI) assets, and modifies the treatment of 
credit losses on available-for-sale (AFS) debt securities.
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    \1\ ASU No. 2016-13 introduces ASC Topic 326 which covers 
measurement of credit losses on financial instruments and includes 
three subtopics: (i) Subtopic 10 Financial Instruments--Credit 
Losses--Overall; (ii) Subtopic 20: Financial Instruments--Credit 
Losses--Measured at Amortized Cost; and (iii) Subtopic 30: Financial 
Instruments--Credit Losses--Available-for-Sale Debt Securities.
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    The new accounting standard for credit losses will apply to all 
banking organizations \2\ that are subject to the regulatory capital 
rules \3\ (capital rules) of the Office of the Comptroller of the 
Currency (OCC), the Board of Governors of the Federal Reserve System 
(Board), and the Federal Deposit Insurance Corporation (FDIC) 
(collectively, the agencies), and that file regulatory reports for 
which the reporting requirements are required to conform to U.S. 
GAAP.\4\
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    \2\ Banking organizations subject to the capital rules include 
national banks, state member banks, state nonmember banks, savings 
associations, and top-tier bank holding companies and savings and 
loan holding companies domiciled in the United States not subject to 
the Board's Small Bank Holding Company Policy Statement (12 CFR part 
225, appendix C), but exclude certain savings and loan holding 
companies that are substantially engaged in insurance underwriting 
or commercial activities or that are estate trusts, and bank holding 
companies and savings and loan holding companies that are employee 
stock ownership plans.
    \3\ 12 CFR part 3 (OCC); 12 CFR part 217 (Board); 12 CFR part 
324 (FDIC).
    \4\ See 12 U.S.C. 1831n; see also Instructions for Preparation 
of Consolidated Financial Statements for Holding Companies, 
Reporting Form FR Y-9C (Reissued March 2013); Instructions for 
Preparation of Consolidated Reports of Condition and Income, 
Reporting Forms FFIEC 031 and FFIEC 041 (last update September 
2017); Instructions for Preparation of Consolidated Reports of 
Condition and Income for a Bank with Domestic Offices Only and Total 
Assets Less than $1 Billion, Reporting Form FFIEC 051 (last update 
September 2017).
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    CECL differs from the incurred loss methodology in several key 
respects. First, CECL requires banking organizations to recognize 
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 banking organizations to consider 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

[[Page 22314]]

methodology, results in earlier recognition of credit losses.
    In addition, CECL replaces multiple impairment approaches in 
existing U.S. GAAP. CECL allowances will cover a broader range of 
financial assets than allowance for loan and lease losses (ALLL) under 
the incurred loss methodology. Under the incurred loss methodology, in 
general, ALLL 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 the latter allowances 
presented as a liability).\5\ These exposures will be within the scope 
of CECL. In addition, CECL covers credit losses on held-to-maturity 
(HTM) debt securities. As mentioned above, ASU No. 2016-13 also 
introduces PCD assets as a replacement for PCI assets. The PCD asset 
definition covers a broader range of assets than the PCI asset 
definition. CECL requires banking organizations to estimate and record 
credit loss allowances for a PCD asset at the time of purchase. The 
credit loss allowance is then added to the purchase price to determine 
the amortized cost basis of the asset for financial reporting purposes. 
Post-acquisition increases in credit loss allowances on PCD assets will 
be established through a charge to earnings. This is different from the 
current treatment of PCI assets, for which banking organizations are 
not permitted to estimate and recognize credit loss allowances at the 
time of purchase. Rather, in general, credit loss allowances for PCI 
assets are estimated subsequent to the purchase only if there is 
deterioration in the expected cash flows from the assets.
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    \5\ ``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 agencies note that 
credit losses for off-balance sheet credit exposures that are 
unconditionally cancellable by the issuer are not recognized under 
CECL.
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    ASU No. 2016-13 also introduces new requirements for 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. AFS debt securities will 
continue to be measured at fair value, with changes in fair value not 
related to credit losses recognized in other comprehensive income. 
Credit loss allowances on an AFS debt security are limited to the 
amount by which the security's fair value is less than its amortized 
cost.
    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. Except for PCD assets, the adjustment to credit loss allowances 
would be recognized with offsetting entries to deferred tax assets 
(DTAs), if appropriate, and to the fiscal year's beginning retained 
earnings.
    The effective date of ASU No. 2016-13 varies for different banking 
organizations. For banking organizations that are U.S. Securities and 
Exchange Commission (SEC) filers,\6\ ASU No. 2016-13 will become 
effective for the first fiscal year beginning after December 15, 2019, 
including interim periods within that fiscal year. For banking 
organizations that are public business entities (PBE) \7\ but not SEC 
filers (as defined in U.S. GAAP), ASU No. 2016-13 will become effective 
for the first fiscal year beginning after December 15, 2020, including 
interim periods within that fiscal year. For banking organizations that 
are not PBEs (as defined in U.S. GAAP), ASU No. 2016-13 will become 
effective for the first fiscal year beginning after December 15, 2020; 
however, these banking organizations will not be required to adopt ASU 
No. 2016-13 for interim period reporting until the first fiscal year 
that begins after December 15, 2021. A banking organization that 
chooses to apply ASU No. 2016-13 early may do so in the first fiscal 
year beginning after December 15, 2018, including interim periods. The 
following table provides a summary of the effective dates.
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    \6\ An SEC filer is an entity (e.g., a bank holding company or 
savings and loan holding company) that is required to file its 
financial statements with the SEC under the federal securities laws 
or, for an insured depository institution, the appropriate federal 
banking agency under section 12(i) of the Securities Exchange Act of 
1934. The banking agencies named under section 12(i) of the 
Securities Exchange Act of 1934 are the OCC, the Board, and the 
FDIC.
    \7\ A public business entity (PBE) that is not an SEC filer 
would include: (1) An entity that has issued securities that are 
traded, listed, or quoted on an over-the-counter market, or (2) an 
entity that has issued one or more securities that are not subject 
to contractual restrictions on transfer and is required by law, 
contract, or regulation to prepare U.S. GAAP financial statements 
(including footnotes) and make them publicly available periodically 
(e.g., pursuant to Section 36 of the Federal Deposit Insurance Act 
and part 363 of the FDIC's rules). For further information on the 
definition of a PBE, refer to ASU No. 2013-12, Definition of a 
Public Business Entity, issued in December 2013.

                          CECL Effective Dates
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                                                           Regulatory
                                  U.S. GAAP effective        report
                                         date           effective date *
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PBEs that are SEC Filers......  Fiscal years beginning  3/31/2020.
                                 after 12/15/2019,
                                 including interim
                                 periods within those
                                 fiscal years.
Other PBEs (Non-SEC Filers)...  Fiscal years beginning  3/31/2021.
                                 after 12/15/2020,
                                 including interim
                                 periods within those
                                 fiscal years.
Non-PBEs......................  Fiscal years beginning  12/31/2021.
                                 after 12/15/2020, and
                                 interim periods for
                                 fiscal years
                                 beginning after 12/15/
                                 2021.
Early Application.............  Early application       3/31 of year of
                                 permitted for fiscal    effective date
                                 years beginning after   of early
                                 12/15/2018, including   application of
                                 interim periods         ASU 2016-13.
                                 within those fiscal
                                 years.
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* For institutions with calendar year-ends.

B. Regulatory Capital

    Changes necessitated by CECL to a banking organization's retained 
earnings, DTAs, and allowances will affect its regulatory capital 
ratios.\8\ Specifically, retained earnings are a key component of a 
banking organization's common equity tier 1 (CET1) capital. An increase 
in a banking organization's

[[Page 22315]]

allowances, including those estimated under CECL, generally will reduce 
the banking organization's earnings or retained earnings, and therefore 
its CET1 capital.\9\ DTAs arising from temporary differences (temporary 
difference DTAs) must be included in a banking organization's risk-
weighted assets or deducted from CET1 capital if they exceed certain 
thresholds. Increases in allowances generally give rise to increases in 
temporary difference DTAs that will partially offset the reduction in 
earnings or retained earnings.\10\ Under the standardized approach of 
the capital rules, ALLL is included in a banking organization's tier 2 
capital up to 1.25 percent of its standardized total risk-weighted 
assets (excluding its standardized market risk-weighted assets, if 
applicable).\11\ An advanced approaches banking organization \12\ that 
has completed the parallel run process \13\ includes in its advanced-
approaches-adjusted total capital any eligible credit reserves that 
exceed the banking organization's total expected credit losses, as 
defined in the capital rules, to the extent that the excess reserve 
amount does not exceed 0.6 percent of the banking organization's credit 
risk-weighted assets.\14\
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    \8\ 12 CFR 3.20 (OCC); 12 CFR 217.20 (Board); 12 CFR 324.20 
(FDIC).
    \9\ However, allowances recognized on PCD assets upon adoption 
of CECL and upon later purchases of PCD assets generally would not 
reduce the banking organization's earnings, retained earnings, or 
CET1 capital.
    \10\ Deferred tax assets are a result of deductible temporary 
differences and carryforwards which result in a decrease in taxes 
payable in future years.
    \11\ Any amount of ALLL greater than the 1.25 percent limit is 
deducted from standardized total risk-weighted assets.
    \12\ A banking organization is an advanced approaches banking 
organization if it has consolidated assets of at least $250 billion 
or if it has consolidated on-balance sheet foreign exposures of at 
least $10 billion, or if it is a subsidiary of a depository 
institution, bank holding company, savings and loan holding company, 
or intermediate holding company that is an advanced approaches 
banking organization. See 12 CFR 3.100 (OCC); 12 CFR 217.100 
(Board); 12 CFR 324.100 (FDIC).
    \13\ An advanced approaches banking organization is considered 
to have completed the parallel run process once it has completed the 
advanced approaches qualification process and received notification 
from its primary federal regulator pursuant to section 121(d) of 
subpart E of the capital rules. See 12 CFR 3.121(d) (OCC); 12 CFR 
217.121(d) (Board); 12 CFR 324.121(d) (FDIC).
    \14\ 12 CFR 3.10(c)(3)(ii) (OCC); 12 CFR 217.10(c)(3)(ii) 
(Board); and 12 CFR 324.10(c)(3)(ii) (FDIC).
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II. Description of the Proposed Rule

    To address the forthcoming implementation of changes to U.S. GAAP 
resulting from the FASB's issuance of ASU No. 2016-13 and to improve 
consistency between the capital rules and U.S. GAAP, the agencies 
propose to amend their capital rules to identify which credit loss 
allowances under the new accounting standard are eligible for inclusion 
in a banking organization's regulatory capital.\15\ In particular, the 
agencies are proposing to add allowance for credit losses (ACL) as a 
newly defined term in the capital rules. ACL would include credit loss 
allowances related to financial assets measured at amortized cost, 
except for allowances for PCD assets. ACL would be eligible for 
inclusion in a banking organization's tier 2 capital subject to the 
current limit for including ALLL in tier 2 capital under the capital 
rules.
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    \15\ Note that under section 37 of the Federal Deposit Insurance 
Act, the accounting principles applicable to reports or statements 
required to be filed with the agencies by all insured depository 
institutions must be uniform and consistent with GAAP. See 12 U.S.C. 
1831n(a)(2)(A). Consistency in reporting under the statute would be 
addressed by the agencies' CECL revisions to the Call Report 
pursuant to the Paperwork Reduction Act.
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    Further, the agencies are proposing to revise the capital rules, as 
applicable to an advanced approaches banking organization that has 
adopted CECL, and that has completed the parallel run process, to align 
the definition of eligible credit reserves with the definition of ACL 
in this proposal. For such a banking organization, the proposal would 
retain the current limit for including eligible credit reserves in tier 
2 capital.
    The proposal also would provide a separate capital treatment for 
allowances associated with AFS debt securities and PCD assets that 
would apply to all banking organizations upon adoption of ASU 2016-13.
    In addition, the agencies are proposing to provide banking 
organizations the option to phase in the day-one adverse regulatory 
capital effects of CECL adoption over a three-year period (CECL 
transition provision). The CECL transition provision is intended to 
address banking organizations' challenges in capital planning for CECL 
implementation, including the uncertainty of economic conditions at the 
time a banking organization adopts CECL.
    The proposed rule also would revise regulatory disclosure 
requirements that would apply to certain banking organizations 
following their adoption of CECL.\16\ Revisions to the agencies' 
regulatory reports will be proposed in a separate notice. Finally, the 
proposed rule would make conforming amendments to the agencies' other 
regulations that refer to credit loss allowances to reflect the 
implementation of ASU No. 2016-13.
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    \16\ For certain banking organizations, sections 63 and 173 of 
the capital rules require disclosure of items such as capital 
structure, capital adequacy, credit risk, and credit risk 
mitigation.
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A. Proposed Revisions to the Capital Rules To Reflect the Change in 
U.S. GAAP

1. Introduction of Allowances for Credit Losses as a Newly Defined Term
    The agencies are proposing to revise the capital rules to reflect 
the revised accounting standard for credit losses under U.S. GAAP as it 
relates to banking organizations' calculation of regulatory capital 
ratios. Under the proposal, the new term ACL, rather than ALLL, would 
apply to a banking organization that has adopted CECL. Consistent with 
the treatment of ALLL under the capital rules' standardized approach, 
amounts of ACL would be eligible for inclusion in a banking 
organization's tier 2 capital up to 1.25 percent of the banking 
organization's standardized total risk-weighted assets (excluding its 
standardized market risk-weighted assets, if applicable).
    CECL allowances cover a broader range of financial assets than ALLL 
under the incurred loss methodology. Under the capital rules, ALLL 
includes valuation allowances that have been established through a 
charge against earnings to cover estimated credit losses on loans or 
other extensions of credit as determined in accordance with U.S. GAAP. 
Under CECL, credit loss allowances represent an accounting valuation 
account, measured as the difference between the financial assets' 
amortized cost basis and the amount expected to be collected on the 
financial assets (i.e., lifetime credit losses). Thus, ACL would 
include allowances for expected credit losses on HTM debt securities 
and lessors' net investments in leases that have been established to 
reduce these assets to amounts expected to be collected, as determined 
in accordance with U.S. GAAP. ACL also would include allowances for 
expected credit losses on off-balance sheet credit exposures not 
accounted for as insurance, as determined in accordance with U.S. GAAP. 
As described below, however, credit loss allowances related to AFS debt 
securities and PCD assets would not be included in the definition of 
ACL. As with the treatment of ALLL, ACL under the proposal also would 
exclude allocated transfer risk reserves.
    Question 1: The agencies request comment on whether use of the term 
``allowance for credit losses'' within the capital rules would present 
operational or other challenges, or generally cause confusion for 
banking organizations, given other contextual uses for the term,

[[Page 22316]]

particularly in U.S. GAAP and accounting guidance.
2. Definition of Carrying Value
    The agencies are proposing to revise the regulatory definition of 
carrying value under the capital rules to provide that, for all assets 
other than AFS debt securities and PCD assets, the carrying value is 
not reduced by any associated credit loss allowance.
i. Available-for-Sale Debt Securities
    Current accounting standards require a banking organization to make 
an individual assessment of each of its AFS debt securities and take a 
direct write-down for credit losses when such a security is other-than-
temporarily impaired. The amount of the write-down is against earnings, 
which reduces CET1 capital and also results in a reduction in the same 
amount of the carrying value of the AFS debt security. ASU No. 2016-13 
revises the accounting for credit impairment of AFS debt securities by 
requiring banking organizations to determine whether a decline in fair 
value below an AFS debt security's amortized cost resulted from a 
credit loss, and to record any such credit impairment through earnings 
with a corresponding allowance. Similar to the current regulatory 
treatment of credit-related losses for other-than-temporary impairment, 
under the proposal all credit losses recognized on AFS debt securities 
would flow through to CET1 capital and reduce the carrying value of the 
AFS debt security. Since the carrying value of an AFS debt security is 
its fair value, which would reflect any credit impairment, credit loss 
allowances for AFS debt securities required under the new accounting 
standard would not be eligible for inclusion in a banking 
organization's tier 2 capital.
ii. Purchased Credit-Deteriorated Assets
    Under the new accounting standard, PCD assets are acquired 
individual financial assets (or acquired groups of financial assets 
with shared risk characteristics) that, as of the date of acquisition 
and as determined by an acquirer's assessment, have experienced a more-
than-insignificant deterioration in credit quality since origination. 
The new accounting standard will require a banking organization to 
estimate expected credit losses that are embedded in the purchase price 
of a PCD asset and recognize these amounts as an allowance as of the 
date of acquisition. As such, the initial allowance amount for a PCD 
asset recorded on a banking organization's balance sheet will not be 
established through a charge to earnings. Post-acquisition increases in 
allowances for PCD assets will be established through a charge against 
earnings.
    Including in tier 2 capital allowances that have not been charged 
against earnings would diminish the quality of regulatory capital. 
Accordingly, the agencies are proposing to maintain the requirement 
that valuation allowances be charged against earnings in order to be 
eligible for inclusion in tier 2 capital. The agencies also are 
clarifying that valuation allowances that are charged to retained 
earnings in accordance with U.S. GAAP (i.e., the allowances required at 
CECL adoption) are eligible for inclusion in tier 2 capital. The 
agencies considered proposing to allow banking organizations to 
bifurcate PCD allowances to include only post-acquisition allowances in 
the definition of ACL. The agencies are concerned, however, that a 
bifurcated approach could create undue complexity and burden for 
banking organizations when determining the amount of credit loss 
allowances for PCD assets eligible for inclusion in tier 2 capital. 
Therefore, the proposal excludes PCD allowances from being included in 
tier 2 capital. The proposal also revises the definition of carrying 
value such that for PCD assets the carrying value is calculated net of 
allowances. This treatment of PCD assets would, in effect, reduce a 
banking organization's standardized total risk-weighted assets, similar 
to the proposed treatment for credit loss allowances for AFS debt 
securities.
    Question 2: The agencies are requesting comment on whether the 
definition of ACL is appropriate for determining the amount of 
allowances that may be included in a banking organization's tier 2 
capital and whether the approach to AFS debt securities and PCD assets 
is appropriate. What, if any, alternatives with respect to the 
treatment of ACL, AFS debt securities, and PCD assets should the 
agencies consider and what are the associated advantages and 
disadvantages of such alternatives?
3. Additional Considerations
    The agencies are not proposing to change the limit of 1.25 percent 
of risk-weighted assets governing the amount of ACL eligible for 
inclusion in tier 2 capital. The agencies intend to monitor the effects 
of this limit on regulatory capital and bank lending practices. This 
ongoing monitoring will include the review of data, including data 
provided by banking organizations, and will assist the agencies in 
determining whether a further change to the capital rules' treatment of 
ACL might be warranted. To the extent the agencies determine that 
further revisions to the capital rules are necessary, the agencies 
would seek comment through a separate proposal.

B. CECL Transition Provision

    As discussed above, upon adopting CECL, a banking organization will 
record an adjustment to its credit loss allowances equal to the 
difference between the amount of credit loss allowances required under 
the incurred loss methodology and the amount of credit loss allowances 
required under CECL. Some banking organizations have expressed concerns 
about the difficulty in capital planning due to the uncertainty about 
the economic environment at the time of CECL adoption. This is largely 
because CECL requires banking organizations to consider current and 
future expected economic conditions to estimate allowances and these 
conditions will not be known until closer to a banking organization's 
CECL adoption date. Therefore, it is possible that despite adequate 
planning to prepare for the implementation of CECL, unexpected economic 
conditions at the time of CECL adoption could result in higher-than-
anticipated increases in allowances. To address these concerns, the 
agencies are proposing to provide a banking organization with the 
option to phase in over a three-year period the day-one adverse effects 
of CECL on the banking organization's regulatory capital ratios.
1. Election of the Optional CECL Transition Provision
    Under the proposal, a banking organization that experiences a 
reduction in retained earnings as of the CECL adoption date may elect 
to phase in the regulatory capital impact of adopting CECL over a 
three-year transition period (electing banking organization). An 
electing banking organization would be required to begin applying the 
CECL transition provision as of the electing banking organization's 
CECL adoption date. An electing banking organization would indicate in 
its regulatory report its election to use the CECL transition provision 
beginning in the quarter that it first reports its credit loss 
allowances as measured under CECL.\17\
---------------------------------------------------------------------------

    \17\ An insured depository institution would indicate its 
election to use the CECL transition provision on its Consolidated 
Reports of Condition and Income. A holding company would indicate 
its election to use the CECL transition provision on its FR Y-9C.
---------------------------------------------------------------------------

    A banking organization that does not elect to use the CECL 
transition provision in the quarter that it first

[[Page 22317]]

reports its credit loss allowances as measured under CECL would not be 
permitted to make an election in subsequent reporting periods and would 
be required to reflect the full effect of CECL in its regulatory 
capital ratios as of the banking organization's CECL adoption date. For 
example, a banking organization that adopts CECL as of January 1, 2020, 
and does not elect to use the CECL transition provision in its 
regulatory report as of March 31, 2020, would not be permitted to use 
the CECL transition provision in any subsequent reporting period.
    A banking organization that is a non-PBE must adopt CECL no later 
than for fiscal years beginning after December 15, 2020, and for 
interim periods for fiscal years beginning after December 15, 2021. As 
a result, unless it chooses to adopt CECL as of an earlier date, such a 
banking organization with a calendar fiscal year will initially reflect 
CECL in its regulatory report filed as of December 31, 2021, even 
though CECL was effective for that banking organization as of the first 
day of the fiscal year. Such a banking organization's regulatory 
capital would not be affected by CECL during the first three reporting 
periods of 2021 and therefore the banking organization would initially 
be eligible to elect the CECL transition provision in its December 31, 
2021 regulatory report. The second year of the transition period would 
begin in the banking organization's March 31, 2022 regulatory report.
    Under the proposed rule, a depository institution holding company 
subject to the Board's capital rule and each of its subsidiary insured 
depository institutions would be eligible to make a CECL transition 
provision election independent of one another.
2. Mechanics of the CECL Transition Provision
    The CECL transition provision is designed to phase in the day-one 
adverse impact on a banking organization's regulatory capital ratios 
resulting from its adoption of CECL. To calculate its transitional 
amounts under the CECL transition provision, an electing banking 
organization would compare the difference between its closing balance 
sheet amount for the fiscal year-end immediately prior to its adoption 
of CECL (pre-CECL amount) and its balance sheet amount as of the 
beginning of the fiscal year in which the electing banking organization 
adopts CECL (post-CECL amount) for the following items: Retained 
earnings, temporary difference DTAs, and credit loss allowances 
eligible for inclusion in regulatory capital. The differences 
determined for each of these items would constitute the transitional 
amounts that an electing banking organization would phase in to its 
regulatory capital calculations over the proposed transition period, 
which would be the three-year period (twelve quarters) beginning the 
first day of the fiscal year in which the electing banking organization 
adopts CECL.
    Specifically, under the proposed rule, an electing banking 
organization's CECL transitional amount would be determined as the 
difference between its pre-CECL and post-CECL amounts of retained 
earnings (CECL transitional amount). An electing banking organization's 
DTA transitional amount would be determined as the difference between 
its pre-CECL and post-CECL amounts of temporary difference DTAs (DTA 
transitional amount). An electing banking organization's ACL 
transitional amount would be determined as the difference between its 
pre-CECL amount of ALLL and its post-CECL amount of ACL (ACL 
transitional amount).
    Under the standardized approach, an electing banking organization 
would phase in over the transition period its CECL transitional amount, 
DTA transitional amount, and ACL transitional amount. The electing 
banking organization also would phase in over the transition period the 
CECL transitional amount to its average total consolidated assets for 
purposes of calculating the tier 1 leverage ratio. Each transitional 
amount would be phased in over the transition period on a straight line 
basis.
    Thus, for regulatory capital ratio calculation purposes, an 
electing banking organization would phase in the CECL transitional 
amount by increasing its retained earnings by 75 percent of its CECL 
transitional amount during the first year of the transition period, by 
50 percent of its CECL transitional amount during the second year of 
the transition period, and by 25 percent of its CECL transitional 
amount during the third year of the transition period. The electing 
banking organization would phase in the DTA transitional amount by 
decreasing the amount of its temporary difference DTAs by 75 percent of 
its DTA transitional amount during the first year of the transition 
period, by 50 percent of its DTA transitional amount during the second 
year of the transition period, and by 25 percent of its DTA 
transitional amount during the third year of the transition period. The 
banking organization would phase in the ACL transitional amount by 
decreasing the amount of its ACL by 75 percent of its ACL transitional 
amount during the first year of the transition period, by 50 percent of 
its ACL transitional amount during the second year of the transition 
period, and by 25 percent of its ACL transitional amount during the 
third year of the transition period. Finally, for regulatory capital 
ratio calculation purposes, the electing banking organization would 
increase the amount of its average total consolidated assets by its 
CECL transitional amount over the transition period on the same 
straight line basis (i.e., increasing average total consolidated assets 
by 75 percent of the CECL transitional amount during year 1, by 50 
percent during year 2, and by 25 percent during year 3 of the 
transition period).
    For example, consider a hypothetical electing banking organization 
that has a CECL effective date of January 1, 2020, and a 21 percent tax 
rate. On the closing balance sheet date immediately prior to adopting 
CECL (i.e., December 31, 2019), the electing banking organization has 
$10 million in retained earnings and $1 million of ALLL. On the opening 
balance sheet date immediately after adopting CECL (i.e., January 1, 
2020), the electing banking organization has $1.2 million of ACL. The 
electing banking organization would recognize the adoption of CECL by 
recording an increase to ACL (credit) of $200,000, with an offsetting 
increase in temporary difference DTAs of $42,000 (debit), and a 
reduction in beginning retained earnings of $158,000 (debit). For each 
of the quarterly reporting periods in year 1 of the transition period 
(i.e., 2020), the electing banking organization would increase both 
retained earnings and average total consolidated assets by $118,500 
($158,000 x 75 percent), decrease temporary difference DTAs by $31,500 
($42,000 x 75 percent), and decrease ACL by $150,000 ($200,000 x 75 
percent) for purposes of calculating its regulatory capital ratios. The 
remainder of the CECL transition provision would be transitioned into 
regulatory capital according to the schedule provided in Table 1.

[[Page 22318]]



                            Table 1--Example of a CECL Transition Provision Schedule
----------------------------------------------------------------------------------------------------------------
                                                   Transitional     Transitional amounts applicable during each
                                                      amounts              year of the transition period
                                                 ---------------------------------------------------------------
                  In thousands                       Column A        Column B        Column C        Column D
                                                 ---------------------------------------------------------------
                                                                   Year 1 at 75%   Year 2 at 50%   Year 3 at 25%
----------------------------------------------------------------------------------------------------------------
Increase retained earnings and average total                $158         $118.50             $79          $39.50
 consolidated assets by the CECL transitional
 amount.........................................
Decrease temporary difference DTAs by the DTA                 42           31.50              21           10.50
 transitional amount............................
Decrease ACL by the ACL transitional amount.....             200             150             100              50
----------------------------------------------------------------------------------------------------------------

    The result of the CECL transition provision for an electing banking 
organization would be to phase in the effect of the adoption of CECL in 
its regulatory capital ratios in a uniform manner. The phase in of the 
CECL transitional amount to retained earnings would mitigate the 
decrease in an electing banking organization's CET1 capital resulting 
from CECL adoption, and would increase during the transition period the 
level at which the capital rule's CET1 capital deduction thresholds 
would be triggered. The DTA transitional amount would phase in the 
amount of an electing banking organization's temporary difference DTAs 
subject to the CET1 capital deduction thresholds and the amount of 
temporary difference DTAs included in risk-weighted assets. The ACL 
transitional amount would phase in the amount of ACL that an electing 
banking organization may include in its tier 2 capital up to the limit 
of 1.25 percent of its standardized total risk-weighted assets 
(excluding its standardized market risk-weighted assets, if 
applicable). Finally, for purposes of an electing banking 
organization's tier 1 leverage ratio calculation, the addition of the 
CECL transitional amount to average total consolidated assets would 
offset the immediate decrease that would otherwise occur as a result of 
the adjustments to ACL and temporary difference DTAs resulting from the 
adoption of CECL.
    Notwithstanding the CECL transition provision, all other aspects of 
the capital rules would continue to apply. Thus, all regulatory capital 
adjustments and deductions would continue to apply and an electing 
banking organization would continue to be limited in the amount of ACL 
that it could include in its tier 2 capital.\18\
---------------------------------------------------------------------------

    \18\ 12 CFR 3.10(c)(3)(ii)(B), 12 CFR 3.20(d)(3) (OCC); 12 CFR 
217.10(c)(3)(ii)(B), 12 CFR 217.20(d)(3) (Board); 12 CFR 
324.10(c)(3)(ii)(B), 12 CFR 324.20(d)(3) (FDIC).
---------------------------------------------------------------------------

    Question 3: The agencies seek comment on other potential approaches 
to phasing in the day-one effects of CECL on banking organizations' 
regulatory capital ratios. What are the pros and cons of such 
alternative approaches?
3. CECL Transition Provision Time Period
    As noted, the agencies are proposing a phase-in period of three 
years. ASU No. 2016-13 was issued in 2016 and becomes mandatory in 2020 
at the earliest, which provides banking organizations with at least 
four years to plan for CECL implementation. While the agencies 
recognize that a banking organization will better understand the 
macroeconomic factors that may affect the size of the banking 
organization's one-time adjustment to CECL closer to its CECL adoption 
date, the agencies view a period of four years to plan for CECL, 
combined with the proposed three-year transition period, as a 
sufficient amount of time for a banking organization to adjust and 
adapt to any immediate adverse effects on regulatory capital ratios 
resulting from CECL adoption.
    Question 4: The agencies seek comment on the sufficiency of the 
proposed three-year transition period. Would a different time period be 
more appropriate? If so, why?
4. Business Combinations
    Under the proposal, an electing banking organization that acquires 
another banking organization (as determined under U.S. GAAP) during the 
period in which the electing banking organization is using its CECL 
transition provision would continue to make use of its transitional 
amounts based on its calculation as of the date of its adoption of 
CECL. Business combinations would cover mergers, acquisitions, and 
transactions in which two existing unrelated entities combine into a 
newly created third entity. However, any CECL transitional amounts, DTA 
transitional amounts, and ACL transitional amounts of an acquired 
electing banking organization would not flow through to the resulting 
banking organization as the assets of an acquired banking organization 
are generally measured at fair value at the time of the business 
combination.
    Question 5: The agencies seek comment on the proposed treatment of 
business combinations and other potential approaches to treating 
business combinations within the context of the CECL transition 
provision. What are the pros and cons of such alternative approaches?
5. Supervisory Oversight
    For purposes of determining whether an electing banking 
organization is in compliance with its regulatory capital requirements 
(including capital buffer and prompt corrective action (PCA) 
requirements), the agencies would use the electing banking 
organization's regulatory capital ratios as adjusted by the CECL 
transition provision. Through the supervisory process, the agencies 
would continue to examine banking organizations' credit loss estimates 
and allowance balances regardless of whether the banking organization 
has elected to use the CECL transition provision. In addition, the 
agencies may monitor electing banking organizations to ensure that such 
banking organizations have adequate capital at the expiration of their 
CECL transition provision period.

C. Additional Requirements for Advanced Approaches Banking 
Organizations

    Under the capital rules, an advanced approaches banking 
organization that has completed the parallel run process includes in 
its advanced-approaches-adjusted total capital any amount of eligible 
credit reserves that exceeds its regulatory expected credit losses to 
the extent that the excess reserve amount does not exceed 0.6 percent 
of the banking organization's credit risk-weighted assets.\19\ The 
agencies propose to revise the definition of eligible credit reserves 
to align with the definition of

[[Page 22319]]

ACL in this proposal. Under the proposal, for an advanced approaches 
banking organization that has adopted CECL, eligible credit reserves 
would mean all general allowances that have been established through a 
charge against earnings or retained earnings to cover expected credit 
losses associated with on- or off-balance sheet wholesale and retail 
exposures, including ACL associated with such exposures. Similar to the 
current definition of eligible credit reserves, the definition of 
eligible credit reserves applicable to banking organizations that have 
adopted CECL would exclude allocated transfer risk reserves established 
pursuant to 12 U.S.C. 3904. In addition, the revised eligible credit 
reserves definition would exclude allowances that reflect credit losses 
on PCD assets and AFS debt securities, and other specific reserves 
created against recognized losses. The definition of eligible credit 
reserves would remain unchanged for an advanced approaches banking 
organization that has not adopted CECL.
---------------------------------------------------------------------------

    \19\ 12 CFR 3.10(c)(3)(ii) (OCC); 12 CFR 217.10(c)(3)(ii) 
(Board); and 12 CFR 324.10(c)(3)(ii) (FDIC).
---------------------------------------------------------------------------

    For purposes of the supplementary leverage ratio, which is 
applicable to all advanced approaches banking organizations, the 
proposal would maintain the current definition of total leverage 
exposure. Thus, total leverage exposure would continue to include, 
among other items, the balance sheet carrying value of an advanced 
approaches banking organization's on-balance sheet assets less amounts 
deducted from tier 1 capital.
    An advanced approaches banking organization that elects to use the 
CECL transition provision (electing advanced approaches banking 
organization) would increase its total leverage exposure for purposes 
of the supplementary leverage ratio by 75 percent of its CECL 
transitional amount during the first year of the transition period, 
increase its total leverage exposure for purposes of the supplementary 
leverage ratio by 50 percent of its CECL transitional amount during the 
second year of the transition period, and increase its total leverage 
exposure for purposes of the supplementary leverage ratio by 25 percent 
of its CECL transitional amount during the third year of the transition 
period.
    In addition, an electing advanced approaches banking organization 
that has completed the parallel run process would calculate an 
additional transitional amount to be phased into its eligible credit 
reserves (eligible credit reserves transitional amount). The eligible 
credit reserves transitional amount would mean the increase in the 
amount of an advanced approaches banking organization's eligible credit 
reserves as of the beginning of the fiscal year in which the banking 
organization adopts CECL from the amount of that banking organization's 
eligible credit reserves as of the closing of the fiscal year-end 
immediately prior to the banking organization's adoption of CECL. An 
electing advanced approaches banking organization would decrease the 
amount of its eligible credit reserves by its eligible credit reserves 
transitional amount over the transition period on a straight line basis 
(i.e., decreasing eligible credit reserves by 75 percent during year 1, 
by 50 percent during year 2, and by 25 percent during year 3).
    An advanced approaches banking organization that has completed the 
parallel run process is required to deduct from CET1 capital the amount 
of expected credit loss that exceeds its eligible credit reserves (ECR 
shortfall). Due to this requirement, an advanced approaches banking 
organization's CET1 capital immediately after CECL adoption may be 
greater than its CET1 capital immediately before CECL adoption.\20\ 
This is because, for such banking organizations, CECL allowances can 
have a dual impact on CET1 capital: A reduction in retained earnings 
(partially offset by DTAs) and a concurrent reduction in the CET1 ECR 
shortfall deduction. The agencies are concerned that the use of the 
CECL transition provision could provide an undue benefit to a banking 
organization that had an ECR shortfall prior to its adoption of CECL 
and could undermine an objective of the CECL transition provision to 
provide relief to banking organizations that experience an immediate 
adverse impact to regulatory capital as a result of CECL adoption. 
Therefore, the agencies are proposing to limit the CECL transitional 
amount that such an electing advanced approaches banking organization 
can include in retained earnings. As part of this proposal, an electing 
advanced approaches banking organization that (1) has completed the 
parallel run process, (2) has an ECR shortfall immediately prior to the 
adoption of CECL, and (3) would have an increase in CET1 capital as of 
the beginning of the fiscal year in which it adopts CECL after 
including the first year portion of the CECL transitional amount, must 
decrease its CECL transitional amount by its DTA transitional 
amount.\21\ The agencies believe requiring such an advanced approaches 
banking organization to reduce its CECL transitional amount by its DTA 
transitional amount would be simple to implement and thus would not be 
operationally burdensome. As an alternative approach, the agencies also 
would consider requiring an electing advanced approaches banking 
organization with an ECR shortfall immediately prior to the adoption of 
CECL to reduce its CECL transitional amount by the amount necessary to 
cause its CET1 capital upon adoption of CECL to not exceed CET1 capital 
immediately prior to adoption of CECL.
---------------------------------------------------------------------------

    \20\ See 12 CFR 3.121(d) (OCC); 12 CFR 217.121(d) (Board); and 
12 CFR 324.121(d) (FDIC).
    \21\ For example, if a banking organization has completed the 
parallel run process, has an ECR shortfall immediately prior to the 
adoption of CECL, would have an increase in CET1 capital as of the 
beginning of the fiscal year in which it adopts CECL after including 
the first year portion of the CECL transitional amount, and, upon 
the adoption of CECL, records an increase to ACL (credit) of 
$200,000, with an offsetting increase in temporary difference DTAs 
of $42,000 (debit), and a reduction in beginning retained earnings 
of $158,000 (debit), then that banking organization would have a 
CECL transitional amount of $116,000 ($158,000-$42,000), and would 
apply $87,000 in year 1, $58,000 in year 2, and $29,000 in year 3 of 
the transition period.
---------------------------------------------------------------------------

    Question 6: The agencies are requesting comment on whether the 
definition of eligible credit reserves is appropriate for determining 
the amount of allowances that may be included in an advanced approaches 
banking organization's total capital. What, if any, alternatives with 
respect to the treatment of eligible credit reserves should the 
agencies consider and what are the associated advantages and 
disadvantages of such alternatives?
    Question 7: The agencies are requesting comment on the proposed 
CECL transitional amount limitation for certain advanced approaches 
banking organizations that have an ECR shortfall. What, if any, are the 
associated advantages and disadvantages of the alternatives provided by 
the agencies?

D. Disclosures and Regulatory Reporting

    Under the proposed rule, banking organizations subject to the 
disclosure requirements in section 63 of the capital rules would be 
required to update their disclosures to reflect the adoption of CECL. 
For example, such banking organizations would be required to disclose 
ACL instead of ALLL after CECL adoption.
    For advanced approaches banking organizations, the agencies propose 
similar revisions to Tables 2, 3, and 5 in section 173 of the capital 
rules to reflect the adoption of CECL. In addition, the agencies are 
proposing revisions to those tables for electing advanced approaches 
banking organizations to disclose two sets of regulatory capital 
ratios. One set would

[[Page 22320]]

reflect the banking organization's capital ratios with the CECL 
transition provision and the other set would reflect the banking 
organization's capital ratios on a fully phased-in basis.
    In addition, to reflect changes in U.S. GAAP, the agencies 
anticipate proposing revisions to the regulatory reporting forms in a 
separate proposal. These proposed revisions would specify how electing 
banking organizations would report their transitional amounts for the 
affected line items in Schedule RC-R of the Call Report and Schedule 
HC-R of the FR Y-9C. In addition, the agencies intend to update 
instructions for certain other reporting forms, including the FFIEC 
101, to account for the CECL transition provision.

E. Conforming Changes to Other Agency Regulations

1. OCC Regulations
    In addition to the capital rules, seven provisions in other OCC 
regulations refer to ALLL, as defined in 12 CFR part 3, in calculating 
various statutory or regulatory limits. Specifically, ALLL is used in 
calculating limits on holdings of certain investment securities (12 CFR 
part 1); limits on ownership of bankers' bank stock (12 CFR 5.20); 
limits on investments in bank premises (12 CFR 5.37); limits on leasing 
of personal property (12 CFR 23.4); limits on certain community 
development investments (12 CFR 24.4); lending limits (12 CFR part 32); 
and, limits on improvements to other real estate owned (12 CFR part 34, 
subpart E).
    The OCC proposes to revise the calculations used in those sections 
that currently reference ALLL to also reference ACL, once a banking 
organization has adopted the FASB standard. This proposed conforming 
revision will ensure that banking organizations will not experience a 
material decrease in any of the affected limits due to the adoption of 
CECL.
    In addition, the OCC proposes to make conforming edits to the 
terminology used in the OCC's stress testing regulation at 12 CFR part 
46 to incorporate the new CECL methodology.
2. Board Regulations
    Certain other regulations of the Board reflect the current practice 
of banking organizations establishing ALLL under the incurred loss 
methodology to cover estimated credit losses on loans, lease financing 
receivables, or other extensions of credit. As discussed in this 
proposal, banking organizations that adopt CECL will hold ACL to cover 
expected credit losses on a broader array of financial assets than 
covered by the ALLL. As a result, the proposal would make conforming 
changes to those other regulations.
    Specifically, the proposal would amend the definition of ``capital 
stock and surplus'' in the Board's Regulation H, 12 CFR part 208, to 
include the balance of a member bank's allowance for credit losses. 
Similarly, the proposal would incorporate ``allowance for credit 
losses'' in the definition of ``capital stock and surplus'' in the 
Board's Regulation K, 12 CFR part 211; Regulation W, 12 CFR part 223; 
and Regulation Y, 12 CFR part 225. A related change would be made to 
the definition of unimpaired capital and unimpaired surplus in the 
Board's Regulation O, 12 CFR part 215.
    The proposal would make a similar change to the Board's Regulation 
K relating to the establishment of an allocated transfer risk reserve 
(ATRR). Specifically, the proposal would replace, for CECL adopters, 
all references to ALLL, in the section relating to the accounting 
treatment of ATRR, with ACL.
    The proposal incorporates technical amendments to Sec.  225.127 of 
the Board's Regulation Y to provide corrected reference citations to 
sections of Regulation Y that have been revised and renumbered.
    Finally, the Board is proposing to amend its stress testing rules 
in the Board's Regulation YY, 12 CFR part 252, to address the changes 
made in U.S. GAAP following the issuance of ASU No. 2016-13. 
Specifically, the Board is proposing to require a banking organization 
that has adopted CECL to include its provision for credit losses 
beginning in the 2020 stress test cycle, which would include provisions 
calculated under ASU No. 2016-13, instead of its provision for loan and 
lease losses, in its stress testing methodologies and data and 
information required to be submitted to the Board and that the 
disclosure of the results of those stress tests includes estimates of 
those provisions. To promote comparability of stress test results 
across firms, the proposal would provide that, for the 2018 and 2019 
stress test cycles, a banking organization would continue to use its 
provision for loan and lease losses, as would be calculated under the 
incurred loss methodology, even if the firm adopted CECL in 2019. 
Finally, under the proposal, a banking organization that does not adopt 
CECL until 2021 would not be required to include its provision for 
credit losses for these purposes until the 2021 stress test cycle. The 
following table describes the stress test cycles in which a banking 
organization would be required to use its provision for credit losses 
instead of the provision for loan and lease losses, based on varying 
dates of adoption of ASU No. 2016-13.

                      Table 2--Summary of Use of Provisions in 2019-2021 Stress Test Cycles
----------------------------------------------------------------------------------------------------------------
 Year of adoption of ASU No. 2016-13    2019 Stress test cycle   2020 Stress test cycle   2021 Stress test cycle
----------------------------------------------------------------------------------------------------------------
2019.................................  Provision for loan and   Provision for credit     Provision for credit
                                        lease losses.            losses.                  losses.
2020.................................  Provision for loan and   Provision for credit     Provision for credit
                                        lease losses.            losses.                  losses.
2021.................................  Provision for loan and   Provision for loan and   Provision for credit
                                        lease losses.            lease losses.            losses.
----------------------------------------------------------------------------------------------------------------

    The proposal would make a similar change to the Board's company-run 
stress test requirements to require a banking organization that has 
adopted CECL, beginning in the 2020 stress test cycle, to incorporate 
the effects of the maintenance of ACL when estimating the impact on pro 
forma regulatory capital levels and pro forma capital ratios.
    Question 8: The Board seeks comment on whether requiring a banking 
organization that adopts CECL in 2019 not to include provisions for 
credit losses in the 2019 stress test cycle would create additional 
burden or complexity.
    Question 9: The Board seeks comment on whether, apart from the 
approach described, additional changes should be made to its stress 
testing rules to address the accounting change.
3. FDIC Regulations
    The proposal would also make conforming amendments to references to 
provisions or ALLL in the FDIC's regulations. Specifically, the 
proposal would replace, for CECL adopters, all references to ALLL with 
ACL (as applicable) in the FDIC's capital rules

[[Page 22321]]

codified at 12 CFR part 324, including in the definitions of 
``identified losses'' and ``standardized total risk-weighted assets.'' 
The proposal would also make the same conforming changes to the 
following FDIC regulations by replacing all references to ALLL with ACL 
as applicable: 12 CFR parts 327, 347 and 390. Finally, consistent with 
the proposed changes to the Board's stress testing rules, the proposal 
would make similar conforming changes to the FDIC's stress testing 
rules codified at 12 CFR part 325.

F. Additional Requests for Comment

    The agencies seek comment on all aspects of the proposal. Comments 
are requested about the potential advantages of the proposal in 
ensuring the individual safety and soundness of these banking 
organizations as well as on the stability of the financial system.

III. Regulatory Analyses

A. Paperwork Reduction Act

    Certain provisions of the proposed rule contain ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In accordance with 
the requirements of the PRA, the agencies may not conduct or sponsor, 
and a respondent is not required to respond to, an information 
collection unless it displays a currently valid Office of Management 
and Budget (OMB) control number. The agencies reviewed the proposed 
rule and determined that the proposed rule revises certain disclosure 
and reporting requirements that have been previously cleared by the OMB 
under various control numbers. The agencies are proposing to extend for 
three years, with revision, these information collections. The 
information collections for the disclosure requirements contained in 
this proposed rulemaking have been submitted by the OCC and FDIC to OMB 
for review and approval under section 3507(d) of the PRA (44 U.S.C. 
3507(d)) and Sec.  1320.11 of the OMB's implementing regulations (5 CFR 
part 1320). The Board reviewed the proposed rule under the authority 
delegated to the Board by OMB.
    Comments are invited on:
    a. Whether the collections of information are necessary for the 
proper performance of the agencies' functions, including whether the 
information has practical utility;
    b. The accuracy or the estimate of the burden of the information 
collections, including the validity of the methodology and assumptions 
used;
    c. Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    d. Ways to minimize the burden of the information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    e. Estimates of capital or startup costs and costs of operation, 
maintenance, and purchase of services to provide information.
Disclosure Burden--Advanced Approaches Banking Organizations
Current Actions
    Section 173 of the capital rules requires that advanced approaches 
banking organizations publicly disclose capital-related information as 
provided in a series of 13 tables. For advanced approaches banking 
organizations, the agencies propose revisions to Tables 2, 3, and 5 in 
section 173 of the capital rules to reflect the adoption of CECL. In 
addition, the agencies are proposing revisions to those tables for 
electing advanced approaches banking organizations to disclose two sets 
of regulatory capital ratios. One set would reflect such banking 
organization's capital ratios with the CECL transition provision and 
the other set would reflect the banking organization's capital ratios 
on a fully phased-in basis. This aspect of the proposed rule affects 
the below-listed information collections.
    The changes in the disclosure requirements to Tables 2, 3, and 5 in 
section 173 of the capital rules would result in an increase in the 
average hours per response per agency of 48 hours for the initial setup 
burden. In addition, the changes in the disclosure requirements to 
Tables 2, 3, and 5 in section 173 of the capital rules would result in 
an increase in the average hours per response per agency of 6 hours for 
ongoing (quarterly) burden.\22\
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    \22\ In an effort to provide transparency, the total cumulative 
burden for each agency is shown. In addition, as stated in the 
Notice of Proposed Rulemaking, Simplifications to the Capital Rule 
Pursuant to the Economic Growth and Regulatory Paperwork Reduction 
Act of 1996, 82 FR 49984 (October 27, 2017), in order to be 
consistent across the agencies, the agencies are also applying a 
conforming methodology for calculating the burden estimates.
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Proposed Revision, With Extension, of the Following Information 
Collections
OCC
    Title of Information Collection: Risk-Based Capital Standards: 
Advanced Capital Adequacy Framework.
    Frequency: Quarterly, annual.
    Affected Public: Businesses or other for-profit.
    Respondents: National banks, state member banks, state nonmember 
banks, and state and federal savings associations.
    OMB control number: 1557-0318.
    Estimated number of respondents: 1,365 (of which 18 are advanced 
approaches institutions).
    Estimated average hours per response:
Minimum Capital Ratios
    Recordkeeping (Ongoing)--16.
Standardized Approach
    Recordkeeping (Initial setup)--122.
    Recordkeeping (Ongoing)--20.
    Disclosure (Initial setup)--226.25.
    Disclosure (Ongoing quarterly)--131.25.
Advanced Approaches
    Recordkeeping (Initial setup)--460.
    Recordkeeping (Ongoing)--540.77.
    Recordkeeping (Ongoing quarterly)--20.
    Disclosure (Initial setup)--328.
    Disclosure (Ongoing)--5.78.
    Disclosure (Ongoing quarterly)--41.
    Proposed revisions estimated annual burden: 432 hours.
    Estimated annual burden hours: 1,136 hours initial setup, 64,945 
hours for ongoing.
Board
    Title of Information Collection: Recordkeeping and Disclosure 
Requirements Associated with Regulation Q.
    Frequency: Quarterly, annual.
    Affected Public: Businesses or other for-profit.
    Respondents: State member banks (SMBs), bank holding companies 
(BHCs), U.S. intermediate holding companies (IHCs), savings and loan 
holding companies (SLHCs), and global systemically important bank 
holding companies (GSIBs).
    Legal authorization and confidentiality: This information 
collection is authorized by section 38(o) of the Federal Deposit 
Insurance Act (12 U.S.C. 1831o(c)), section 908 of the International 
Lending Supervision Act of 1983 (12 U.S.C. 3907(a)(1)), section 9(6) of 
the Federal Reserve Act (12 U.S.C. 324), and section 5(c) of the Bank 
Holding Company Act (12 U.S.C. 1844(c)). The obligation to respond to 
this information collection is mandatory. If a respondent considers the 
information to be trade secrets and/or privileged such information 
could be withheld from the public under the authority of the Freedom of 
Information Act (5 U.S.C. 552(b)(4)). Additionally, to the extent that 
such information may be contained in an examination report such

[[Page 22322]]

information could also be withheld from the public (5 U.S.C. 552 
(b)(8)).
    Agency form number: FR Q.
    OMB control number: 7100-0313.
    Estimated number of respondents: 1,431 (of which 17 are advanced 
approaches institutions).
    Estimated average hours per response:
Minimum Capital Ratios
    Recordkeeping (Ongoing)--16.
Standardized Approach
    Recordkeeping (Initial setup)--122.
    Recordkeeping (Ongoing)--20.
    Disclosure (Initial setup)--226.25.
    Disclosure (Ongoing quarterly)--131.25.
Advanced Approaches
    Recordkeeping (Initial setup)--460.
    Recordkeeping (Ongoing)--540.77.
    Recordkeeping (Ongoing quarterly)--20.
    Disclosure (Initial setup)--328.
    Disclosure (Ongoing)--5.78.
    Disclosure (Ongoing quarterly)--41.
    Disclosure (Table 13 quarterly)--5.
Risk-based Capital Surcharge for GSIBs
    Recordkeeping (Ongoing)--0.5.
    Proposed revisions estimated annual burden: 456 hours.
    Estimated annual burden hours: 1,136 hours initial setup, 78,591 
hours for ongoing.
FDIC
    Title of Information Collection: Regulatory Capital Rules.
    Frequency: Quarterly, annual.
    Affected Public: Businesses or other for-profit.
    Respondents: State nonmember banks, state savings associations, and 
certain subsidiaries of those entities.
    OMB control number: 3064-0153.
    Estimated number of respondents: 3,637 (of which 2 are advanced 
approaches institutions).
    Estimated average hours per response:
Minimum Capital Ratios
    Recordkeeping (Ongoing)--16.
Standardized Approach
    Recordkeeping (Initial setup)--122.
    Recordkeeping (Ongoing)--20.
    Disclosure (Initial setup)--226.25.
    Disclosure (Ongoing quarterly)--131.25.
Advanced Approaches
    Recordkeeping (Initial setup)--460.
    Recordkeeping (Ongoing)--540.77.
    Recordkeeping (Ongoing quarterly)--20.
    Disclosure (Initial setup)--328.
    Disclosure (Ongoing)--5.78.
    Disclosure (Ongoing quarterly)--41.
    Proposed revisions estimated annual burden: 96 hours.
    Estimated annual burden hours: 1,136 hours initial setup, 133,038 
hours for ongoing.
Reporting Burden--FFIEC and Board Forms
Current Actions
    The agencies also plan to make changes to certain FFIEC and Board 
reporting forms and/or their related instructions as a result of the 
issuance of ASU 2016-13. In particular, the forms and/or related 
instructions for the following FFIEC reports could be affected: 
Consolidated Reports of Condition and Income (Call Reports) (FFIEC 031, 
FFIEC 041, and FFIEC 051; OMB No. 1557-0081, 7100-0036, and 3064-0052), 
Report of Assets and Liabilities of U.S. Branches and Agencies of 
Foreign Banks (FFIEC 002; OMB No. 7100-0032), Report of Assets and 
Liabilities of a Non-U.S. Branch that is Managed or Controlled by a 
U.S. Branch or Agency of a Foreign (Non-U.S.) Bank (FFIEC 002S; OMB No. 
7100-0032), Annual Dodd-Frank Act Company-Run Stress Test Report for 
Depository Institutions and Holding Companies with $10-$50 Billion in 
Total Consolidated Assets (FFIEC 016; OMB No. 1557-0311, 7100-0356, and 
3064-0187), Foreign Branch Report of Condition (FFIEC 030; OMB No. 
1557-0099, 7100-0071, and 3064-0011), Abbreviated Foreign Branch Report 
of Condition (FFIEC 030S; OMB No. 1557-0099, 7100-0071, and 3064-0011), 
and Regulatory Capital Reporting for Institutions Subject to the 
Advanced Capital Adequacy Framework (FFIEC 101; OMB No. 1557-0239, 
7100-0319, and 3064-0159). The forms and/or related instructions for 
the following Board reports could be affected: Financial Statements of 
Foreign Subsidiaries of U.S. Banking Organizations (FR 2314; OMB No. 
7100-0073), Domestic Finance Company Report of Consolidated Assets and 
Liabilities (FR 2248; OMB No. 7100-0005), Weekly Report of Selected 
Assets and Liabilities of Domestically Chartered Commercial Banks and 
U.S. Branches and Agencies of Foreign Banks (FR 2644; OMB No. 7100-
0075), Consolidated Report of Condition and Income for Edge and 
Agreement Corporations (FR 2886b; OMB No. 7100-0086), Financial 
Statements of U.S. Nonbank Subsidiaries Held by Foreign Banking 
Organizations (FR Y-7N; 7100-0125), Consolidated Financial Statements 
for Holding Companies (FR Y-9C; OMB No. 7100-0128), Parent Company Only 
Financial Statements for Large Holding Companies (FR Y-9LP; OMB No. 
7100-0128), Parent Company Only Financial Statements for Small Holding 
Companies (FR Y-9SP; OMB No. 7100-0128), Financial Statements of U.S. 
Nonbank Subsidiaries of U.S. Holding Companies (FR Y-11; OMB No. 7100-
0244), Capital Assessments and Stress Testing (FR Y-14; OMB No. 7100-
0341), and Banking Organization Systemic Risk Report (FR Y-15; OMB No. 
7100-0352). These changes to the FFIEC forms and/or instructions as 
well as the Board forms and/or instructions would be addressed in 
separate Federal Register notices.

B. Regulatory Flexibility Act

    OCC: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., (RFA), 
requires an agency, in connection with a proposed rule, to prepare an 
Initial Regulatory Flexibility Analysis describing the impact of the 
rule on small entities (defined by the Small Business Administration 
(SBA) for purposes of the RFA to include commercial banks and savings 
institutions with total assets of $550 million or less and trust 
companies with total revenue of $38.5 million or less) or to certify 
that the proposed rule would not have a significant economic impact on 
a substantial number of small entities. As of December 31, 2016, the 
OCC supervised 956 small entities. The rule would apply to all OCC-
supervised entities that are not subject to the advanced approaches 
risk-based capital rules, and thus potentially affects a substantial 
number of small entities. To determine whether a proposed rule would 
have a significant effect on those small entities, the OCC considers 
whether the economic impact associated with the proposed rule is 
greater than or equal to either 5 percent of a small entity's total 
annual salaries and benefits or 2.5 percent of a small entity's total 
non-interest expense. The OCC estimates the proposed rule would not 
generate any costs for affected small entities. The proposed rule may 
generate a benefit for those small entities that elect the transition 
of approximately $13,000 per electing small entity supervised by the 
OCC. This estimate is based on the potential savings to small entities 
from not needing to raise additional capital related to CECL 
implementation due to the proposed regulatory capital transition. The 
estimated benefit is not significant in relation to the measures 
described above. Therefore, the OCC certifies that the proposed rule 
would not have a significant economic impact

[[Page 22323]]

on a substantial number of OCC-supervised small entities.
    Board: The RFA requires an agency to consider whether the rules it 
proposes will have a significant economic impact on a substantial 
number of small entities.\23\ In connection with a proposed rule, the 
RFA requires an agency to prepare an initial regulatory flexibility 
analysis describing the impact of the rule on small entities or to 
certify that the proposed rule would not have a significant economic 
impact on a substantial number of small entities. An initial regulatory 
flexibility analysis must contain (1) a description of the reasons why 
action by the agency is being considered; (2) a succinct statement of 
the objectives of, and legal basis for, the proposed rule; (3) a 
description of, and, where feasible, an estimate of the number of small 
entities to which the proposed rule will apply; (4) a description of 
the projected reporting, recordkeeping, and other compliance 
requirements of the proposed rule, including an estimate of the classes 
of small entities that will be subject to the requirement and the type 
of professional skills necessary for preparation of the report or 
record; (5) an identification, to the extent practicable, of all 
relevant Federal rules which may duplicate, overlap with, or conflict 
with the proposed rule; and (6) a description of any significant 
alternatives to the proposed rule which accomplish its stated 
objectives.
---------------------------------------------------------------------------

    \23\ Under regulations issued by the Small Business 
Administration, a small entity includes a depository institution, 
bank holding company, or savings and loan holding company with total 
assets of $550 million or less and trust companies with total assets 
of $38.5 million or less. As of December 31, 2017, there were 
approximately 3,384 small bank holding companies, 230 small savings 
and loan holding companies, and 559 small state member banks.
---------------------------------------------------------------------------

    The Board has considered the potential impact of the proposed rule 
on small entities in accordance with the RFA. Based on its analysis and 
for the reasons stated below, the Board believes that this proposed 
rule will not have a significant economic impact on a substantial 
number of small entities. Nevertheless, the Board is publishing and 
inviting comment on this initial regulatory flexibility analysis. A 
final regulatory flexibility analysis will be conducted after comments 
received during the public comment period have been considered.
    As discussed in detail above, the agencies are proposing to 
identify which credit loss allowances under GAAP (ASU No. 2016-13) are 
eligible for inclusion in regulatory capital and to provide banking 
organization the option to phase in, over a three-year period, the 
effect on regulatory capital that may result from adoption of this 
accounting standard (ASU No. 2016-13). The proposal also would make 
conforming amendments to other regulations.
    The Board has authority under the International Lending Supervision 
Act (ILSA) \24\ and the PCA provisions of the Federal Deposit Insurance 
Act \25\ to establish regulatory capital requirements for the 
institutions it regulates. For example, ILSA directs each Federal 
banking agency to cause banking institutions to achieve and maintain 
adequate capital by establishing minimum capital requirements as well 
as by other means that the agency deems appropriate.\26\ The PCA 
provisions of the Federal Deposit Insurance Act direct each Federal 
banking agency to specify, for each relevant capital measure, the level 
at which an insured depository institution is well capitalized, 
adequately capitalized, undercapitalized, and significantly 
undercapitalized.\27\ In addition, the Board has authority to establish 
regulatory capital standards for bank holding companies under ILSA \28\ 
and the Bank Holding Company Act \29\ and for savings and loan holding 
companies under the Home Owners Loan Act.\30\
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    \24\ 12 U.S.C. 3901-3911.
    \25\ 12 U.S.C. 1831o.
    \26\ 12 U.S.C. 3907(a)(1).
    \27\ 12 U.S.C. 1831o(c)(2).
    \28\ See 12 U.S.C. 3907.
    \29\ See 12 U.S.C. 1844.
    \30\ See 12 U.S.C. 1467a(g)(1).
---------------------------------------------------------------------------

    All banking organizations will be required to adopt ASU No. 2016-
13, which will likely result in an increase in credit loss allowances. 
An increase in a banking organization's credit loss allowances will 
reduce the firm's retained earnings and therefore its CET1 capital. The 
proposed rule would identify those credit loss allowances under ASU No. 
2016-13 that would be eligible for inclusion in regulatory capital. 
Further, the proposed rule would introduce a three-year transition 
period, which would allow a banking organization to phase in the 
immediate impact of adoption of ASU No. 2016-13. During the transition 
period, a banking organization that elects to use the phase-in would 
report higher capital than it otherwise would under the current capital 
rules.
    The proposed rule also would make conforming amendments to certain 
of the Board's other regulations. In particular, certain other 
regulations of the Board include a definition of ``capital stock and 
surplus,'' which reflect the current practice of banking organizations 
establishing ALLL to cover estimated credit losses on loans, lease 
financing receivables, or other extensions of credit. The proposed rule 
would allow banking organizations that are subject to these regulations 
to also include in the definition of ``capital stock and surplus'' 
those credit loss allowances under ASU No. 2016-13 that would be 
eligible for inclusion in regulatory capital. Most aspects of the 
proposed rule would apply to all state member banks, as well as 
generally all bank holding companies and savings and loan holding 
companies that are subject to the Board's capital rule. However, in 
virtually all cases, the Board's capital rule only applies to bank 
holding companies and savings and loan holding companies with greater 
than $1 billion in total assets. Thus, virtually all bank holding 
companies that would be subject to the proposed rule do not qualify as 
small banking organizations. With respect to state member banks that do 
qualify as small banking organizations, the proposed revision to the 
Board's capital rule would should have an economic benefit as they will 
be able to include additional credit loss allowances into regulatory 
capital than they otherwise would under the current capital rules. 
Therefore, the Board estimates the proposed rule would not generate any 
costs for affected small entities.
    The proposed rule would not impact the recordkeeping and reporting 
requirements to which affected small banking organizations are 
currently subject. The agencies anticipate updating the relevant 
reporting forms at a later date.
    The Board does not believe that the proposed rule duplicates, 
overlaps, or conflicts with any other Federal rules. In light of the 
foregoing, the Board does not believe that the proposed rule, if 
adopted in final form, would have a significant economic impact on a 
substantial number of small entities and therefore believes that there 
are no significant alternatives to the proposed rule that would reduce 
the economic impact on small banking organizations supervised by the 
Board. Nonetheless, the Board seeks comment on whether the proposed 
rule would impose undue burdens on, or have unintended consequences 
for, small organizations, and whether there are ways such potential 
burdens or consequences could be minimized in a manner consistent with 
the purpose of the proposed rule. A final regulatory flexibility 
analysis will be conducted after consideration of comments received 
during the public comment period.

[[Page 22324]]

FDIC: Statement of the Regulatory Flexibility Act Requirements
    The RFA generally requires that, in connection with a notice of 
proposed rulemaking, an agency prepare and make available for public 
comment an initial regulatory flexibility analysis describing the 
impact of the proposed rule on small entities.\31\ A regulatory 
flexibility analysis is not required, however, if the agency certifies 
that the rule will not have a significant economic effect on a 
substantial number of small entities. The SBA has defined ``small 
entities'' to include banking organizations with total assets less than 
or equal to $550 million.\32\
---------------------------------------------------------------------------

    \31\ 5 U.S.C. 601 et seq.
    \32\ 13 CFR 121.201 (as amended, effective December 2, 2014).
---------------------------------------------------------------------------

Description of Need and Policy Objectives
    In June 2016, the FASB issued ASU No. 2016-13, which revises the 
accounting for credit losses under U.S. GAAP. CECL differs from the 
incurred loss methodology currently implemented by institutions in 
several key respects. CECL requires banking organizations to recognize 
lifetime expected credit losses for financial assets measured at 
amortized cost, not just those credit losses that are probable of 
having been incurred as of the reporting date. In addition to 
maintaining the current requirement for banking organizations to 
consider past events and current conditions, CECL requires the 
incorporation of reasonable and supportable forecasts in developing an 
estimate of lifetime expected credit losses.
    Upon adoption of CECL, a banking organization will record a one-
time adjustment to its allowance for credit losses 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 the 
CECL methodology. Changes to retained earnings, DTAs, and ALLL affect a 
banking organization's calculation of regulatory capital.\33\ To 
address changes made in U.S. GAAP following the FASB's issuance of ASU 
No. 2106-13, the FDIC is proposing to amend its capital rule \34\ to 
give banking organizations the option to phase in the immediate, 
potentially adverse effects of CECL adoption over a three-year period.
---------------------------------------------------------------------------

    \33\ 12 CFR 3.20 (OCC); 12 CFR 217.20 (Board); 12 CFR 324.20 
(FDIC).
    \34\ Under section 37 of the Federal Deposit Insurance Act, the 
accounting principles applicable to reports or statements required 
to be filed with the agencies by all insured depository institutions 
must be uniform and consistent with U.S. GAAP. See 12 U.S.C. 
1831n(a)(2)(A).
---------------------------------------------------------------------------

Description of the Proposal
    A description of the proposal is presented Section II: Description 
of the Proposed Rule. Please refer to it for further information.
Other Federal Rules
    The FDIC has not identified any likely duplication, overlap, and/or 
potential conflict between the proposed rule and any federal rule.
Economic Impacts on Small Entities
    The proposed rule could affect all FDIC-supervised small entities. 
The FDIC supervises 3,637 depository institutions, of which 2,924 are 
defined as small banking entities by the terms of the RFA.\35\ However, 
the number of small entities that elect to utilize the proposed three-
year transition schedule is difficult to estimate. Utilization will 
depend on an institution's business model, the preferences of senior 
management or ownership, the assets held by the institution and 
reasonable expectation of future macroeconomic conditions, among other 
things.
---------------------------------------------------------------------------

    \35\ FDIC Call Report data as of December 31, 2017.
---------------------------------------------------------------------------

    The proposal, if implemented, would benefit small institutions who 
adopt the proposed three-year transition schedule by allowing them to 
phase-in any increases in capital associated with the implementation of 
CECL over that time. The three year transition schedule would reduce 
the costs associated with potential increases in capital relative to 
the immediate impact of CECL adoption by allowing institutions to raise 
capital levels gradually, over-time. It is difficult to accurately 
estimate the potential benefit for small institutions with available 
data because it depends on the assets held by small institutions, their 
provision activity, future economic conditions, and the decisions of 
senior management, among other things.
    The proposal would pose some small regulatory costs for 
institutions that opt to utilize the three-year transition schedule. 
Changes in disclosure requirements for capital rules would result in an 
estimated increase of 48 hours on average hours per response per agency 
for the initial setup burden, as well as an estimated increase of 6 
hours per response per agency for ongoing (quarterly) burden. 
Additionally, small entities that are subsidiaries of large complex 
institutions may have additional regulatory costs associated with 
changes in disclosure requirements. However, those costs are also 
likely to be small. Further, the small regulatory costs associated with 
implementing proposed three-year transition schedule will be 
demonstrably less than the benefits posed by utilizing the schedule for 
those institutions that opt to utilize it.
    Therefore, the FDIC does not believe that the proposed rule would 
have a significant economic impact on a substantial number of small 
entities.
Alternatives Considered
    As an alternative to the proposed rule, the FDIC considered 
allowing CECL to go into effect with no accompanying action by the 
financial regulators. However, this alternative would likely result in 
higher costs for small entities. Additionally, the FDIC considered the 
alternative of a longer transition period of up to five years. While 
this alternative might reduce the costs of adopting CECL more than the 
proposed alternative, it also heightens the risk of capital increases 
coinciding with a potential future downturn in the business cycle. The 
coincidence of rising capital requirements during a future downturn in 
the business cycle could reduce the benefits of the proposed rule and 
have deleterious effects on lending activity.
Solicitation of Comments
    The FDIC invites comments on all aspects of the supporting 
information provided in this RFA section. Particularly, the FDIC 
invites comments on the effects the proposed rule will have on capital 
for institutions and the magnitude of those effects.

C. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires the federal 
banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The agencies have sought to present 
the proposed rule in a simple and straightforward manner, and invite 
comment on the use of plain language. For example:
     Have the agencies organized the material to suit your 
needs? If not, how could they present the proposed rule more clearly?
     Are the requirements in the proposed rule clearly stated? 
If not, how could the proposed rule be more clearly stated?
     Do the regulations contain technical language or jargon 
that is not clear? If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes would achieve that?

[[Page 22325]]

     Would more, but shorter, sections be better? If so, which 
sections should be changed?''
     What other changes can the agencies incorporate to make 
the regulation easier to understand?

D. OCC Unfunded Mandates Reform Act of 1995

    The OCC analyzed the proposed rule under the factors set forth in 
the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532). Under 
this analysis, the OCC considered whether the proposed rule includes a 
federal mandate that may result in the expenditure by state, local, and 
Tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year (adjusted for inflation). The OCC has 
determined that this proposed rule would not result in expenditures by 
state, local, and Tribal governments, or the private sector, of $100 
million or more in any one year. Accordingly, the OCC has not prepared 
a written statement to accompany this proposal.

E. Riegle Community Development and Regulatory Improvement Act of 1994

    The Riegle Community Development and Regulatory Improvement Act of 
1994 (RCDRIA) requires that each federal banking agency, in determining 
the effective date and administrative compliance requirements for new 
regulations that impose additional reporting, disclosure, or other 
requirements on insured depository institutions, consider, consistent 
with principles of safety and soundness and the public interest, any 
administrative burdens that such regulations would place on depository 
institutions, including small depository institutions, and customers of 
depository institutions, as well as the benefits of such regulations. 
In addition, new regulations and amendments to regulations that impose 
additional reporting, disclosures, or other new requirements on insured 
depository institutions generally must take effect on the first day of 
a calendar quarter that begins on or after the date on which the 
regulations are published in final form.\36\
---------------------------------------------------------------------------

    \36\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

    The agencies note that comment on these matters has been solicited 
in other sections of this Supplementary Information section, and that 
the requirements of RCDRIA will be considered as part of the overall 
rulemaking process. In addition, the agencies also invite any other 
comments that further will inform the agencies' consideration of 
RCDRIA.

List of Subjects

12 CFR Part 1

    Banks, banking, National banks, Reporting and recordkeeping 
requirements, Securities.

12 CFR Part 3

    Administrative practice and procedure, Capital, National banks, 
Risk.

12 CFR Part 5

    Administrative practice and procedure, Federal savings 
associations, National banks, Reporting and recordkeeping requirements, 
Securities.

12 CFR Part 23

    Banks, banking, National banks, Lease financing transactions, 
Leasing, Reporting and recordkeeping requirements.

12 CFR Part 24

    Affordable housing, Community development, Credit, Investments, 
Economic development and job creation, Low- and moderate-income areas, 
Low- and moderate-income housing, National banks, Public welfare 
investments, Reporting and recordkeeping requirements, Rural areas, 
Small businesses, Tax credit investments.

12 CFR Part 32

    National banks, Reporting and recordkeeping requirements.

12 CFR Part 34

    Appraisal, Appraiser, Banks, banking, Consumer protection, Credit, 
Mortgages, National banks, Reporting and recordkeeping requirements, 
Savings associations, Truth in lending.

12 CFR Part 46

    Banking, Banks, Capital, Disclosures, National banks, 
Recordkeeping, Risk, Savings associations, Stress test.

12 CFR Part 208

    Confidential business information, Crime, Currency, Federal Reserve 
System, Mortgages, reporting and recordkeeping requirements, 
Securities.

12 CFR Part 211

    Exports, Federal Reserve System, Foreign banking, Holding 
companies, Investments, Reporting and recordkeeping requirements.

12 CFR Part 215

    Credit, Penalties, Reporting and recordkeeping requirements.

12 CFR Part 217

    Administrative practice and procedure, Banks, Banking, Capital, 
Federal Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Risk, Securities.

12 CFR Part 223

    Banks, Banking, Federal Reserve System.

12 CFR Part 225

    Administrative practice and procedure, Banks, banking, Federal 
Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Securities.

12 CFR Part 252

    Administrative practice and procedure, Banks, banking, Federal 
Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Securities.

12 CFR Part 324

    Administrative practice and procedure, Banks, banking, Reporting 
and recordkeeping requirements, Savings associations.

12 CFR Part 325

    Banks, banking, Reporting and recordkeeping requirements.

12 CFR Part 327

    Bank deposit insurance, Banks, banking, Savings associations.

12 CFR Part 347

    Authority delegation (Government agencies), Bank deposit insurance, 
Banks, banking, Credit, Foreign banking, Investments, Reporting and 
recordkeeping requirements, U.S. Investments abroad.

12 CFR Part 390

    Administrative practice and procedure, Advertising, Aged, Civil 
rights, Conflict of interests, Credit, Crime, Equal employment 
opportunity, Fair housing, Government employees, Individuals with 
disabilities, Reporting and recordkeeping requirements, Savings 
associations.

Office of the Comptroller of the Currency

    For the reasons set out in the joint preamble, the OCC proposes to 
amend 12 CFR chapter I as follows.

PART 1--INVESTMENT SECURITIES

    1. The authority citation for part 1 continues to read as follows:

    Authority:  12 U.S.C. 1 et seq., 24 (Seventh), and 93a.


[[Page 22326]]


    2. Section 1.2 is amended by revising paragraph (a)(2) to read as 
follows:


Sec.  1.2  Definitions.

    (a) * * *
    (2) The balance of a bank's allowance for loan and lease losses or 
allowance for credit losses, as applicable, not included in the bank's 
Tier 2 capital, for purposes of the calculation of risk-based capital 
described in paragraph (a)(1) of this section, as reported in the 
bank's Call Report.
* * * * *

PART 3--CAPITAL ADEQUACY STANDARDS

0
3. The authority citation for part 3 continues to read as follows:

    Authority:  12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818, 
1828(n), 1828 note, 1831n note, 1835, 3907, 3909, and 5412(b)(2)(B).

0
4. Section 3.2 is amended by:
0
a. Adding the definitions of Allowance for credit losses (ACL) in 
alphabetical order;
0
b. Revising the definition of Carrying value;
0
c. Adding the definition of Current expected credit losses (CECL) in 
alphabetical order; and
0
d. Revising the definition of Eligible credit reserves and paragraph 
(2) of the definition of Standardized total risk-weighted assets.
    The revisions and additions read as follows:


Sec.  3.2   Definitions.

* * * * *
    Allowance for credit losses (ACL) means, with respect to a national 
bank or Federal savings association that has adopted CECL, valuation 
allowances that have been established through a charge against earnings 
or retained earnings for expected credit losses on financial assets 
measured at amortized cost and a lessor's net investment in leases that 
have been established to reduce the amortized cost basis of the assets 
to amounts expected to be collected as determined in accordance with 
GAAP. For purposes of this part, allowance for credit losses includes 
allowances for expected credit losses on off-balance sheet credit 
exposures not accounted for as insurance as determined in accordance 
with GAAP. Allowance for credit losses excludes ``allocated transfer 
risk reserves'' and allowances created that reflect credit losses on 
purchased credit-deteriorated assets and available-for-sale debt 
securities.
* * * * *
    Carrying value means, with respect to an asset, the value of the 
asset on the balance sheet of the national bank or Federal savings 
association as determined in accordance with GAAP. For all assets other 
than available-for-sale debt securities or purchased credit-
deteriorated assets, the carrying value is not reduced by any 
associated credit loss allowance that is determined in accordance with 
GAAP.
* * * * *
    Current expected credit losses (CECL) means the current expected 
credit losses methodology under GAAP.
* * * * *
    Eligible credit reserves means:
    (1) For a national bank or Federal savings association that has not 
adopted CECL, all general allowances that have been established through 
a charge against earnings to cover estimated credit losses associated 
with on- or off-balance sheet wholesale and retail exposures, including 
the ALLL associated with such exposures, but excluding allocated 
transfer risk reserves established pursuant to 12 U.S.C. 3904 and other 
specific reserves created against recognized losses; and
    (2) For a national bank or Federal savings association that has 
adopted CECL, all general allowances that have been established through 
a charge against earnings or retained earnings to cover expected credit 
losses associated with on- or off-balance sheet wholesale and retail 
exposures, including ACL associated with such exposures. Eligible 
credit reserves exclude allocated transfer risk reserves established 
pursuant to 12 U.S.C. 3904, allowances that reflect credit losses on 
purchased credit-deteriorated assets and available-for-sale debt 
securities, and other specific reserves created against recognized 
losses.
* * * * *
    Standardized total risk-weighted assets * * *
    (2) Any amount of a national bank's or Federal savings 
association's allowance for loan and lease losses or allowance for 
credit losses, as applicable, that is not included in tier 2 capital 
and any amount of ``allocated transfer risk reserves.''
* * * * *


Sec.  3.10   [Amended]

0
5. Section 3.10(c)(3)(ii)(A) is amended by removing the words 
``allowance for loan and lease losses'' and adding in their place the 
words ``allowance for loan and lease losses or allowance for credit 
losses, as applicable,''.


Sec. Sec.  3.20, 3.22, and 3.124   [Amended]

0
6. Sections 3.20, 3.22, and 3.124 are amended by removing ``ALLL'' 
everywhere it appears and adding in its place ``ALLL or ACL, as 
applicable,'', except the second occurrence in Sec.  3.20(d)(3) where 
``ALLL or ACL, as applicable'' is added in its place.


Sec.  3.63  [Amended]

0
7. Section 3.63 is amended in Table 5 by removing ``allowance for loan 
and lease losses,'' and ``allowance for loan and lease losses'' and 
adding in their place ``allowance for loan and lease losses or 
allowance for credit losses, as applicable,'' and removing ``ALLL'' and 
adding in its place ``ALLL or ACL, as applicable''.


Sec.  3.173   [Amended]

0
8. Section 3.173 is amended:
0
a. In Table 2, by adding paragraph (e);
0
b. In Table 3, by revising paragraph (e), redesignating paragraph (f) 
as paragraph (g), and adding a new paragraph (f); and
0
c. In Table 5, by:
0
i. Removing ``allowance for loan and lease losses,'' and ``allowance 
for loan and lease losses'' and adding in their place ``allowance for 
loan and lease losses or allowance for credit losses, as applicable,''; 
and
0
ii. Revising paragraph (g).
    The additions and revisions read as follows:


Sec.  3.173  Disclosures by certain advanced approaches national banks 
or Federal savings associations.

* * * * *

[[Page 22327]]



               Table 2 to Sec.   3.173--Capital Structure
------------------------------------------------------------------------
 
------------------------------------------------------------------------
 
                              * * * * * * *
                         (e)....................  (1) Whether the
                                                   national bank or
                                                   Federal savings
                                                   association has
                                                   elected to phase in
                                                   recognition of the
                                                   transitional
                                                   adjustment amount as
                                                   defined in Sec.
                                                   3.301.
                                                  (2) The national
                                                   bank's or Federal
                                                   savings association's
                                                   common equity tier 1
                                                   capital, tier 1
                                                   capital, and total
                                                   capital without
                                                   including the
                                                   transitional
                                                   adjustment amount.
------------------------------------------------------------------------


                Table 3 to Sec.   3.173--Capital Adequacy
------------------------------------------------------------------------
 
------------------------------------------------------------------------
 
                              * * * * * * *
                         (e)....................  (1) Common equity tier
                                                   1, tier 1 and total
                                                   risk-based capital
                                                   ratios reflecting the
                                                   transition provisions
                                                   described in Sec.
                                                   3.301:
                                                  (A) For the top
                                                   consolidated group;
                                                   and
                                                  (2) For each
                                                   depository
                                                   institution
                                                   subsidiary.
                         (f)....................  Common equity tier 1,
                                                   tier 1 and total risk-
                                                   based capital ratios
                                                   reflecting the full
                                                   adoption of CECL:
                                                  (1) For the top
                                                   consolidated group;
                                                   and
                                                  (2) For each
                                                   depository
                                                   institution
                                                   subsidiary.
 
                              * * * * * * *
------------------------------------------------------------------------

* * * * *

      Table 5 \1\ to Sec.   3.173--Credit Risk: General Disclosures
------------------------------------------------------------------------
 
------------------------------------------------------------------------
 
                              * * * * * * *
                         (g)....................  Reconciliation of
                                                   changes in ALLL or
                                                   ACL, as
                                                   applicable.\6\
 
                              * * * * * * *
------------------------------------------------------------------------
\1\ Table 5 to Sec.   3.173 does not cover equity exposures, which
  should be reported in Table 9.
 
 * * * * * * *
\6\ The reconciliation should include the following: A description of
  the allowance; the opening balance of the allowance; charge-offs taken
  against the allowance during the period; amounts provided (or
  reversed) for estimated probable loan losses during the period; any
  other adjustments (for example, exchange rate differences, business
  combinations, acquisitions and disposals of subsidiaries), including
  transfers between allowances; and the closing balance of the
  allowance. Charge-offs and recoveries that have been recorded directly
  to the income statement should be disclosed separately.

* * * * *
0
9. Section 3.301 is added to read as follows:


Sec.  3.301   Current expected credit losses (CECL) transition.

    (a) CECL transition provision--(1) A national bank or Federal 
savings association may elect to use a CECL transition provision 
pursuant to this section only if the national bank or Federal savings 
association records a reduction in retained earnings due to the 
adoption of CECL as of the beginning of the fiscal year in which the 
national bank or Federal savings association adopts CECL.
    (2) A national bank or Federal savings association that elects to 
use the CECL transition provision must use the CECL transition 
provision in the first Call Report that includes CECL filed by the 
national bank or Federal savings association after it adopts CECL.
    (3) A national bank or Federal savings association that does not 
elect to use the CECL transition provision as of the first Call Report 
that includes CECL filed as described in paragraph (a)(2) of this 
section may not elect to use the CECL transition provision in 
subsequent reporting periods.
    (b) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Transition period means the three-year period (twelve quarters) 
beginning the first day of the fiscal year in which a national bank or 
Federal savings association adopts CECL.
    (2) CECL transitional amount means the decrease net of any DTAs in 
the amount of a national bank's or Federal savings association's 
retained earnings as of the beginning of the fiscal year in which the 
national bank or Federal savings association adopts CECL from the 
amount of the national bank's or Federal savings association's retained 
earnings as of the closing of the fiscal year-end immediately prior to 
the national bank's or Federal savings association's adoption of CECL.
    (3) DTA transitional amount means the increase in the amount of a 
national bank's or Federal savings association's DTAs arising from 
temporary differences as of the beginning of the fiscal year in which 
the national bank or Federal savings association adopts CECL from the 
amount of the national bank's or Federal savings association's DTAs 
arising from temporary differences as of the closing of the fiscal 
year-end immediately prior to the national bank's or Federal savings 
association's adoption of CECL.
    (4) ACL transitional amount means the difference in the amount of a 
national bank's or Federal savings association's ACL as of the 
beginning of the fiscal year in which the national bank or Federal 
savings association adopts CECL and the amount of the national bank's 
or Federal savings association's ALLL as of the closing of the fiscal 
year-end immediately prior to the national bank's or Federal savings 
association's adoption of CECL.
    (5) Eligible credit reserves transitional amount means the increase 
in the amount of a national bank's or Federal savings association's 
eligible credit reserves as of the beginning of the fiscal year in 
which the national bank or Federal savings association adopts CECL

[[Page 22328]]

from the amount of the national bank's or Federal savings association's 
eligible credit reserves as of the closing of the fiscal year-end 
immediately prior to the national bank's or Federal savings 
association's adoption of CECL.
    (c) Calculation of CECL transition provision. (1) For purposes of 
the election described in paragraph (a)(1) of this section, a national 
bank or Federal savings association must make the following adjustments 
in its calculation of regulatory capital ratios:
    (i) Increase retained earnings by seventy-five percent of its CECL 
transitional amount during the first year of the transition period, 
increase retained earnings by fifty percent of its CECL transitional 
amount during the second year of the transition period, and increase 
retained earnings by twenty-five percent of its CECL transitional 
amount during the third year of the transition period;
    (ii) Decrease amounts of DTAs arising from temporary differences by 
seventy-five percent of its DTA transitional amount during the first 
year of the transition period, decrease amounts of DTAs arising from 
temporary differences by fifty percent of its DTA transitional amount 
during the second year of the transition period, and decrease amounts 
of DTAs arising from temporary differences by twenty-five percent of 
its DTA transitional amount during the third year of the transition 
period;
    (iii) Decrease amounts of ACL by seventy-five percent of its ACL 
transitional amount during the first year of the transition period, 
decrease amounts of ACL by fifty percent of its ACL transitional amount 
during the second year of the transition period, and decrease amounts 
of ACL by twenty-five percent of its ACL transitional amount during the 
third year of the transition period; and
    (iv) Increase average total consolidated assets as reported on the 
Call Report for purposes of the leverage ratio by seventy-five percent 
of its CECL transitional amount during the first year of the transition 
period, increase average total consolidated assets as reported on the 
Call Report for purposes of the leverage ratio by fifty percent of its 
CECL transitional amount during the second year of the transition 
period, and increase average total consolidated assets as reported on 
the Call Report for purposes of the leverage ratio twenty-five percent 
of its CECL transitional amount during the third year of the transition 
period.
    (2) For purposes of the election described in paragraph (a)(1) of 
this section, an advanced approaches national bank or Federal savings 
association must make the following additional adjustments to its 
calculation of regulatory capital ratios:
    (i) Increase total leverage exposure for purposes of the 
supplementary leverage ratio by seventy-five percent of its CECL 
transitional amount during the first year of the transition period, 
increase total leverage exposure for purposes of the supplementary 
leverage ratio by fifty percent of its CECL transitional amount during 
the second year of the transition period, and increase total leverage 
exposure for purposes of the supplementary leverage ratio by twenty-
five percent of its CECL transitional amount during the third year of 
the transition period; and
    (ii) An advanced approaches national bank or Federal savings 
association that has completed the parallel run process and that has 
received notification from the OCC pursuant to Sec.  3.121(d) must 
decrease amounts of eligible credit reserves by seventy-five percent of 
its eligible credit reserves transitional amount during the first year 
of the transition period, decrease amounts of eligible credit reserves 
by fifty percent of its eligible credit reserves transitional amount 
during the second year of the transition provision, and decrease 
amounts of eligible credit reserves by twenty-five percent of its 
eligible credit reserves transitional amount during the third year of 
the transition period.
    (3) A national bank or Federal savings association that has 
completed the parallel run process and that has received notification 
from the OCC pursuant to Sec.  3.121(d), and whose amount of expected 
credit loss exceeded its eligible credit reserves immediately prior to 
the adoption of CECL, and that this has an increase in common equity 
tier 1 capital as of the beginning of the fiscal year in which it 
adopts CECL after including the first year portion of the CECL 
transitional amount must decrease its CECL transitional amount used in 
paragraph (c) of this section by the full amount of its DTA 
transitional amount.
    (4) Notwithstanding any other requirement in this section, for 
purposes of this paragraph (c)(4), in the event of a business 
combination involving a national bank or Federal savings association 
where one or both of the national bank or Federal savings association 
have elected the treatment described in this section:
    (i) If the acquirer national bank or Federal savings association 
(as determined under GAAP) elected the treatment described in this 
section, the acquirer national bank or Federal savings association must 
continue to use the transitional amounts (unaffected by the business 
combination) that it calculated as of the date that it adopted CECL 
through the end of its transition period.
    (ii) If the acquired insured depository institution (as determined 
under GAAP) elected the treatment described in this section, any 
transitional amount of the acquired insured depository institution does 
not transfer to the resulting national bank or Federal savings 
association.

PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES

0
10. The authority citation for part 5 continues to read as follows:

    Authority: 12 U.S.C. 1 et seq., 24a, 93a, 215a-2, 215a-3, 481, 
1462a, 1463, 1464, 2901 et seq., 3907, and 5412(b)(2)(B).

0
11. Section 5.3 is amended by revising paragraph (e)(2) to read as 
follows:


Sec.  5.3   Definitions.

* * * * *
    (e) * * *
    (2) The balance of a national bank's or Federal savings 
association's allowance for loan and lease losses or allowance for 
credit losses, as applicable, not included in the bank's Tier 2 
capital, for purposes of the calculation of risk-based capital 
described in paragraph (e)(1) of this section, as reported in the Call 
Report.
* * * * *
0
12. Section 5.37 is amended by revising paragraph (c)(3)(ii) to read as 
follows:


Sec.  5.37   Investment in national bank or Federal savings association 
premises.

* * * * *
    (c) * * *
    (3) * * *
    (ii) The balance of a national bank's or Federal savings 
association's allowance for loan and lease losses or allowance for 
credit losses, as applicable, not included in the bank's Tier 2 
capital, for purposes of the calculation of risk-based capital 
described in paragraph (c)(3)(i) of this section, as reported in the 
Call Report.
* * * * *

PART 23--LEASING

0
13. The authority citation for part 23 continues to read as follows:

    Authority: 12 U.S.C. 1 et seq., 24(Seventh), 24(Tenth), and 93a.

0
14. Section 23.2 is amended by revising paragraph (b)(2) to read as 
follows:


Sec.  23.2   Definitions.

* * * * *

[[Page 22329]]

    (b) * * *
    (2) The balance of a bank's allowance for loan and lease losses or 
allowance for credit losses, as applicable, not included in the bank's 
Tier 2 capital, for purposes of the calculation of risk-based capital 
described in paragraph (b)(1) of this section, as reported in the 
bank's Call Report.
* * * * *

PART 24--COMMUNITY AND ECONOMIC DEVELOPMENT ENTITIES, COMMUNITY 
DEVELOPMENT PROJECTS, AND OTHER PUBLIC WELFARE INVESTMENTS

0
15. The authority citation for part 24 continues to read as follows:

    Authority: 12 U.S.C. 24(Eleventh), 93a, 481 and 1818.

0
16. Section 24.2 is amended by revising paragraph (b)(2) to read as 
follows:


Sec.  24.2  Definitions.

* * * * *
    (b) * * *
    (2) The balance of a bank's allowance for loan and lease losses or 
allowance for credit losses, as applicable, not included in the bank's 
Tier 2 capital, for purposes of the calculation of risk-based capital 
described in paragraph (b)(1) of this section, as reported in the 
bank's Call Report.
* * * * *

PART 32--LENDING LIMITS

0
17. The authority citation for part 32 continues to read as follows:

    Authority:  12 U.S.C. 1 et seq., 12 U.S.C. 84, 93a, 1462a, 1463, 
1464(u), 5412(b)(2)(B), and 15 U.S.C. 1639h.

0
18. Section 32.2 is amended by revising paragraph (c)(2) to read as 
follows:


Sec.  32.2  Definitions.

* * * * *
    (c) * * *
    (2) The balance of a national bank's or savings association's 
allowance for loan and lease losses or allowance for credit losses, as 
applicable, not included in the bank's Tier 2 capital, for purposes of 
the calculation of risk-based capital described in paragraph (c)(1) of 
this section, as reported in the bank's Call Report.
* * * * *

PART 34--REAL ESTATE LENDING AND APPRAISALS

0
19. The authority citation for part 32 continues to read as follows:

    Authority:  12 U.S.C. 1 et seq., 25b, 29, 93a, 371, 1462a, 1463, 
1464, 1465, 1701j-3, 1828(o), 3331 et seq., 5101 et seq., and 
5412(b)(2)(B) and 15 U.S.C. 1639h.

0
20. Section 34.81 is amended by revising paragraph (a)(2) to read as 
follows:


Sec.  34.81   Definitions.

    (a) * * *
    (2) The balance of a bank's allowance for loan and lease losses or 
allowance for credit losses, as applicable, not included in the bank's 
Tier 2 capital, for purposes of the calculation of risk-based capital 
described in paragraph (a)(1) of this section, as reported in the 
bank's Call Report.
* * * * *

PART 46--ANNUAL STRESS TEST

0
21. The authority citation for part 46 continues to read as follows:

    Authority:  12 U.S.C. 93a; 1463(a)(2); 5365(i)(2); and 
5412(b)(2)(B).


Sec.  46.8   [Amended]

0
22. Section 46.8 is amended by removing the phrase ``loan and lease'' 
and adding in its place ``credit'' wherever that phrase appears.

Board of Governors of the Federal Reserve System

12 CFR Chapter II

Authority and Issuance

    For the reasons set forth in the preamble, chapter II of title 12 
of the Code of Federal Regulations is proposed to be amended as 
follows:

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL 
RESERVE SYSTEM (REGULATION H)

0
23. The authority citation for part 208 continues to read as follows:

    Authority:  12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-
338a, 371d, 461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 
1833(j), 1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1831w, 1831x, 
1835a, 1882, 2901-2907, 3105, 3310, 3331-3351, 3905-3909, and 5371; 
15 U.S.C. 78b, 78I(b), 78l(i), 780-4(c)(5), 78q, 78q-1, and 78w, 
1681s, 1681w, 6801, and 6805; 31 U.S.C. 5318; 42 U.S.C. 4012a, 
4104a, 4104b, 4106 and 4128.

0
24. In Sec.  208.2, paragraph (d) is revised to read as follows:


Sec.  208.2   Definitions.

* * * * *
    (d) Capital stock and surplus means, unless otherwise provided in 
this part, or by statute:
    (1) Tier 1 and tier 2 capital included in a member bank's risk-
based capital (as defined in Sec.  217.2 of this chapter); and
    (2) The balance of a member bank's allowance for loan and lease 
losses or allowance for credit losses, as applicable, not included in 
its tier 2 capital for calculation of risk-based capital, based on the 
bank's most recent Report of Condition and Income filed under 12 U.S.C. 
324.
* * * * *

PART 211--INTERNATIONAL BANKING OPERATIONS (REGULATION K)

0
25. The authority citation for part 211 continues to read as follows:

    Authority:  12 U.S.C. 221 et seq., 1818, 1835a,1841 et seq., 
3101 et seq., 3901 et seq., and 5101 et seq.; 15 U.S.C. 1681s, 
1681w, 6801 and 6805.

Subpart A--International Operations of U.S. Banking Organizations

0
26. In Sec.  211.2, revise paragraph (c)(1) to read as follows:


Sec.  211.2  Definitions.

* * * * *
    (c) Capital and surplus means, unless otherwise provided in this 
part:
    (1) For organizations subject to 12 CFR part 217 (Regulation Q):
    (i) Tier 1 and tier 2 capital included in an organization's risk-
based capital (under Regulation Q); and
    (ii) The balance of allowance for loan and lease losses or 
allowance for credit losses, as applicable, not included in an 
organization's tier 2 capital for calculation of risk-based capital, 
based on the organization's most recent consolidated Report of 
Condition and Income.
* * * * *

Subpart D--International Lending Supervision

0
27. In Sec.  211.43, revise paragraph (c)(4) to read as follows:


Sec.  211.43   Allocated transfer risk reserve.

* * * * *
    (c) * * *
    (4) Alternative accounting treatment. A banking institution is not 
required to establish an ATRR if it writes down in the period in which 
the ATRR is required, or has written down in prior periods, the value 
of the specified international assets in the requisite amount for each 
such asset. For purposes of this paragraph (c)(4), international assets 
may be written down by a charge to the Allowance for Loan and Lease 
Losses or the allowance for credit losses, as applicable, to the

[[Page 22330]]

extent permitted under U.S. generally accepted accounting principles, 
or a reduction in the principal amount of the asset by application of 
interest payments or other collections on the asset. However, the 
Allowance for Loan and Lease Losses or allowance for credit losses, as 
applicable, must be replenished in such amount necessary to restore it 
to a level which adequately provides for the estimated losses inherent 
in the banking institution's loan portfolio.
* * * * *

PART 215--LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL 
SHAREHOLDERS OF MEMBER BANKS (REGULATION O)

0
28. The authority citation for part 215 continues to read as follows:

    Authority:  12 U.S.C. 248(a), 375a(10), 375b(9) and (10), 1468, 
1817(k), 5412; and Pub. L. 102-242, 105 Stat. 2236 (1991).
0
29. In Sec.  215.2, revise paragraph (i)(2) to read as follows:


Sec.  215.2   Definitions.

* * * * *
    (i) * * *
    (2) The balance of the bank's allowance for loan and lease losses 
or allowance for credit losses, as applicable, not included in the 
bank's tier 2 capital for purposes of the calculation of risk-based 
capital under the capital rules of the appropriate Federal banking 
agency, based on the bank's most recent consolidated reports of 
condition filed under 12 U.S.C. 1817(a)(3).
* * * * *

PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND 
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)

0
30. The authority citation for part 217 continues to read as follows:

    Authority:  12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a, 
1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1851, 3904, 
3906-3909, 4808, 5365, 5368, 5371.

0
31. In Sec.  217.2:
0
a. Add the definition of Allowance for credit losses (ACL) in 
alphabetical order;
0
b. Revise the definition of Carrying value;
0
c. Add the definition of Current expected credit losses (CECL) in 
alphabetical order; and
0
d. Revise the definition of Eligible credit reserves and paragraph (2) 
of the definition of Standardized total risk-weighted assets.
    The additions and revisions read as follows:


Sec.  217.2   Definitions.

* * * * *
    Allowance for credit losses (ACL) means, with respect to a Board-
regulated institution that has adopted CECL, valuation allowances that 
have been established through a charge against earnings or retained 
earnings for expected credit losses on financial assets measured at 
amortized cost and a lessor's net investment in leases that have been 
established to reduce the amortized cost basis of the assets to amounts 
expected to be collected as determined in accordance with GAAP. For 
purposes of this part, allowance for credit losses includes allowances 
for expected credit losses on off-balance sheet credit exposures not 
accounted for as insurance as determined in accordance with GAAP. 
Allowance for credit losses excludes ``allocated transfer risk 
reserves'' and allowances created that reflect credit losses on 
purchased credit-deteriorated assets and available-for-sale debt 
securities.
* * * * *
    Carrying value means, with respect to an asset, the value of the 
asset on the balance sheet of a Board-regulated institution as 
determined in accordance with GAAP. For all assets other than 
available-for-sale debt securities or purchased credit-deteriorated 
assets, the carrying value is not reduced by any associated credit loss 
allowance that is determined in accordance with GAAP.
* * * * *
    Current expected credit losses (CECL) means the current expected 
credit losses methodology under GAAP.
* * * * *
    Eligible credit reserves means:
    (1) For a Board-regulated institution that has not adopted CECL, 
all general allowances that have been established through a charge 
against earnings to cover estimated credit losses associated with on- 
or off-balance sheet wholesale and retail exposures, including the ALLL 
associated with such exposures, but excluding allocated transfer risk 
reserves established pursuant to 12 U.S.C. 3904 and other specific 
reserves created against recognized losses; and
    (2) For a Board-regulated institution that has adopted CECL, all 
general allowances that have been established through a charge against 
earnings or retained earnings to cover expected credit losses 
associated with on- or off-balance sheet wholesale and retail 
exposures, including ACL associated with such exposures. Eligible 
credit reserves exclude allocated transfer risk reserves established 
pursuant to 12 U.S.C. 3904, allowances that reflect credit losses on 
purchased credit-deteriorated assets and available-for-sale debt 
securities, and other specific reserves created against recognized 
losses.
* * * * *
    Standardized total risk-weighted assets * * *
    (2) Any amount of the Board-regulated institution's allowance for 
loan and lease losses or allowance for credit losses, as applicable, 
that is not included in tier 2 capital and any amount of ``allocated 
transfer risk reserves.''
* * * * *


Sec.  217.10   [Amended]

0
32. In Sec.  217.10(c)(3)(ii)(A), remove the words ``allowance for loan 
and lease losses'' and add in their place the words ``allowance for 
loan and lease losses or allowance for credit losses, as applicable,''.


Sec. Sec.  217.20(d)(3), 217.22, and 217.124  [Amended]

0
33. In Sec. Sec.  217.20, 217.22, and 217.124, remove ``ALLL'' 
everywhere it appears and add in its place ``ALLL or ACL, as 
applicable,''.


Sec.  217.63   [Amended]

0
34. In Table 5 to Sec.  217.63, remove ``allowance for loan and lease 
losses,'' and ``allowance for loan and lease losses'' and add in their 
place ``allowance for loan and lease losses or allowance for credit 
losses, as applicable,'' and remove ``ALLL'' and add in its place 
``ALLL or ACL, as applicable''.
0
35. Amend Sec.  217.173 as follows:
0
a. In Table 2, add paragraph (e);
0
b. In Table 3, revise paragraph (e), redesignate paragraph (f) as 
paragraph (g), and add a new paragraph (f); and
0
c. In Table 5, revise paragraphs (a), (e), and (g).
    The additions and revisions read as follows:


Sec.  217.173  Disclosures by certain advanced approaches Board-
regulated institutions.

* * * * *

[[Page 22331]]



              Table 2 to Sec.   217.173--Capital Structure
------------------------------------------------------------------------
 
------------------------------------------------------------------------
 
                              * * * * * * *
                         (e)....................  (1) Whether the Board-
                                                   regulated institution
                                                   has elected to phase
                                                   in recognition of the
                                                   transitional amounts
                                                   as defined in Sec.
                                                   217.300(f).
                                                  (2) The Board-
                                                   regulated
                                                   institution's common
                                                   equity tier 1
                                                   capital, tier 1
                                                   capital, and total
                                                   capital without
                                                   including the
                                                   transitional amounts
                                                   as defined in Sec.
                                                   217.300(f).
------------------------------------------------------------------------


               Table 3 to Sec.   217.173--Capital Adequacy
------------------------------------------------------------------------
 
------------------------------------------------------------------------
 
                              * * * * * * *
                         (e)....................  (1) Common equity tier
                                                   1, tier 1 and total
                                                   risk-based capital
                                                   ratios reflecting the
                                                   transition provisions
                                                   described in Sec.
                                                   217.300(f):
                                                  (A) For the top
                                                   consolidated group;
                                                   and
                                                  (2) For each
                                                   depository
                                                   institution
                                                   subsidiary.
                         (f)....................  Common equity tier 1,
                                                   tier 1 and total risk-
                                                   based capital ratios
                                                   reflecting the full
                                                   adoption of CECL:
                                                  (1) For the top
                                                   consolidated group;
                                                   and
                                                  (2) For each
                                                   depository
                                                   institution
                                                   subsidiary.
 
                              * * * * * * *
------------------------------------------------------------------------

* * * * *

     Table 5 \1\ to Sec.   217.173--Credit Risk: General Disclosures
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative disclosures  (a)....................  The general
                                                   qualitative
                                                   disclosure
                                                   requirement with
                                                   respect to credit
                                                   risk (excluding
                                                   counterparty credit
                                                   risk disclosed in
                                                   accordance with Table
                                                   7 to Sec.   217.173),
                                                   including:
                                                  (1) Policy for
                                                   determining past due
                                                   or delinquency
                                                   status;
                                                  (2) Policy for placing
                                                   loans on nonaccrual;
                                                  (3) Policy for
                                                   returning loans to
                                                   accrual status;
                                                  (4) Definition of and
                                                   policy for
                                                   identifying impaired
                                                   loans (for financial
                                                   accounting purposes);
                                                  (5) Description of the
                                                   methodology that the
                                                   entity uses to
                                                   estimate its
                                                   allowance for loan
                                                   and lease losses or
                                                   allowance for credit
                                                   losses, as
                                                   applicable, including
                                                   statistical methods
                                                   used where
                                                   applicable;
                                                  (6) Policy for
                                                   charging-off
                                                   uncollectible
                                                   amounts; and
                                                  (7) Discussion of the
                                                   Board-regulated
                                                   institution's credit
                                                   risk management
                                                   policy.
 
                              * * * * * * *
                         (e)....................  By major industry or
                                                   counterparty type:
                                                  (1) Amount of impaired
                                                   loans for which there
                                                   was a related
                                                   allowance under GAAP;
                                                  (2) Amount of impaired
                                                   loans for which there
                                                   was no related
                                                   allowance under GAAP;
                                                  (3) Amount of loans
                                                   past due 90 days and
                                                   on nonaccrual;
                                                  (4) Amount of loans
                                                   past due 90 days and
                                                   still accruing; \4\
                                                  (5) The balance in the
                                                   allowance for loan
                                                   and lease losses or
                                                   allowance for credit
                                                   losses, as
                                                   applicable, at the
                                                   end of each period,
                                                   disaggregated on the
                                                   basis of the entity's
                                                   impairment method. To
                                                   disaggregate the
                                                   information required
                                                   on the basis of
                                                   impairment
                                                   methodology, an
                                                   entity shall
                                                   separately disclose
                                                   the amounts based on
                                                   the requirements in
                                                   GAAP; and
                                                  (6) Charge-offs during
                                                   the period.
 
                              * * * * * * *
                         (g)....................  Reconciliation of
                                                   changes in ALLL or
                                                   ACL, as
                                                   applicable.\6\
 
                              * * * * * * *
------------------------------------------------------------------------
\1\ Table 5 to Sec.   217.173 does not cover equity exposures, which
  should be reported in Table 9.
 
 * * * * * * *
\4\ A Board-regulated institution is encouraged also to provide an
  analysis of the aging of past-due loans.
 
 * * * * * * *
\6\ The reconciliation should include the following: a description of
  the allowance; the opening balance of the allowance; charge-offs taken
  against the allowance during the period; amounts provided (or
  reversed) for estimated probable loan losses during the period; any
  other adjustments (for example, exchange rate differences, business
  combinations, acquisitions and disposals of subsidiaries), including
  transfers between allowances; and the closing balance of the
  allowance. Charge-offs and recoveries that have been recorded directly
  to the income statement should be disclosed separately.

* * * * *
0
36. Add Sec.  217.301 to read as follows:


Sec.  217.301  Current expected credit losses (CECL) transition.

    (a) CECL transition provision--(1) A Board-regulated institution 
may elect to use a CECL transition provision pursuant to this section 
only if the Board-regulated institution records a reduction in retained 
earnings due to the adoption of CECL as of the beginning of the fiscal 
year in which the

[[Page 22332]]

Board-regulated institution adopts CECL.
    (2) A Board-regulated institution that elects to use the CECL 
transition provision must use the CECL transition provision in the 
first Call Report or FR Y-9C that includes CECL filed by the Board-
regulated institution after it adopts CECL.
    (3) A Board-regulated institution that does not elect to use the 
CECL transition provision as of the first Call Report or FR Y-9C that 
includes CECL filed as described in paragraph (a)(2) of this section 
may not elect to use the CECL transition provision in subsequent 
reporting periods.
    (b) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Transition period means the three-year period (twelve quarters) 
beginning the first day of the fiscal year in which a Board-regulated 
institution adopts CECL.
    (2) CECL transitional amount means the decrease net of any DTAs in 
the amount of a Board-regulated institution's retained earnings as of 
the beginning of the fiscal year in which the Board-regulated 
institution adopts CECL from the amount of the Board-regulated 
institution's retained earnings as of the closing of the fiscal year-
end immediately prior to the Board-regulated institution's adoption of 
CECL.
    (3) DTA transitional amount means the increase in the amount of a 
Board-regulated institution's DTAs arising from temporary differences 
as of the beginning of the fiscal year in which the Board-regulated 
institution adopts CECL from the amount of the Board-regulated 
institution's DTAs arising from temporary differences as of the closing 
of the fiscal year-end immediately prior to the Board-regulated 
institution's adoption of CECL.
    (4) ACL transitional amount means the difference in the amount of a 
Board-regulated institution's ACL as of the beginning of the fiscal 
year in which the Board-regulated institution adopts CECL and the 
amount of the Board-regulated institution's ALLL as of the closing of 
the fiscal year-end immediately prior to the Board-regulated 
institution's adoption of CECL.
    (5) Eligible credit reserves transitional amount means the increase 
in the amount of a Board-regulated institution's eligible credit 
reserves as of the beginning of the fiscal year in which the Board-
regulated institution adopts CECL from the amount of the Board-
regulated institution's eligible credit reserves as of the closing of 
the fiscal year-end immediately prior to the Board-regulated 
institution's adoption of CECL.
    (c) Calculation of CECL transition provision. (1) For purposes of 
the election described in paragraph (a)(1) of this section, a Board-
regulated institution must make the following adjustments in its 
calculation of regulatory capital ratios:
    (i) Increase retained earnings by seventy-five percent of its CECL 
transitional amount during the first year of the transition period, 
increase retained earnings by fifty percent of its CECL transitional 
amount during the second year of the transition period, and increase 
retained earnings by twenty-five percent of its CECL transitional 
amount during the third year of the transition period;
    (ii) Decrease amounts of DTAs arising from temporary differences by 
seventy-five percent of its DTA transitional amount during the first 
year of the transition period, decrease amounts of DTAs arising from 
temporary differences by fifty percent of its DTA transitional amount 
during the second year of the transition period, and decrease amounts 
of DTAs arising from temporary differences by twenty-five percent of 
its DTA transitional amount during the third year of the transition 
period;
    (iii) Decrease amounts of ACL by seventy-five percent of its ACL 
transitional amount during the first year of the transition period, 
decrease amounts of ACL by fifty percent of its ACL transitional amount 
during the second year of the transition period, and decrease amounts 
of ACL by twenty-five percent of its ACL transitional amount during the 
third year of the transition period; and
    (iv) Increase average total consolidated assets as reported on the 
Call Report or FR Y-9C for purposes of the leverage ratio by seventy-
five percent of its CECL transitional amount during the first year of 
the transition period, increase average total consolidated assets as 
reported on the Call Report or FR Y-9C for purposes of the leverage 
ratio by fifty percent of its CECL transitional amount during the 
second year of the transition period, and increase average total 
consolidated assets as reported on the Call Report or FR Y-9C for 
purposes of the leverage ratio twenty-five percent of its CECL 
transitional amount during the third year of the transition period.
    (2) For purposes of the election described in paragraph (a)(1) of 
this section, an advanced approaches Board-regulated institution must 
make the following additional adjustments to its calculation of 
regulatory capital ratios:
    (i) Increase total leverage exposure for purposes of the 
supplementary leverage ratio by seventy-five percent of its CECL 
transitional amount during the first year of the transition period, 
increase total leverage exposure for purposes of the supplementary 
leverage ratio by fifty percent of its CECL transitional amount during 
the second year of the transition period, and increase total leverage 
exposure for purposes of the supplementary leverage ratio by twenty-
five percent of its CECL transitional amount during the third year of 
the transition period; and
    (ii) An advanced approaches Board-regulated institution that has 
completed the parallel run process and has received notification from 
the Board pursuant to Sec.  217.121(d) must decrease amounts of 
eligible credit reserves by seventy-five percent of its eligible credit 
reserves transitional amount during the first year of the transition 
period, decrease amounts of eligible credit reserves by fifty percent 
of its eligible credit reserves transitional amount during the second 
year of the transition provision, and decrease amounts of eligible 
credit reserves by twenty-five percent of its eligible credit reserves 
transitional amount during the third year of the transition period.
    (3) An advanced approaches Board-regulated institution that has 
completed the parallel run process and has received notification from 
the Board pursuant to Sec.  217.121(d), whose amount of expected credit 
loss exceeded its eligible credit reserves immediately prior to the 
adoption of CECL, and that has an increase in common equity tier 1 
capital as of the beginning of the fiscal year in which it adopts CECL 
after including the first year portion of the CECL transitional amount 
must decrease its CECL transitional amount used in paragraph (c) of 
this section by the full amount of its DTA transitional amount.
    (4) Notwithstanding any other requirement in this section, for 
purposes of this paragraph (c)(4), in the event of a business 
combination involving Board-regulated institutions where one or both 
Board-regulated institutions have elected the treatment described in 
this section:
    (i) If the acquirer Board-regulated institution (as determined 
under GAAP) elected the treatment described in this section, the 
acquirer Board-regulated institution must continue to use the 
transitional amounts (unaffected by the business combination) that it 
calculated as of the date that it adopted CECL through the end of its 
transition period.
    (ii) If the acquired company (as determined under GAAP) elected the 
treatment described in this section, any

[[Page 22333]]

transitional amount of the acquired company does not transfer to the 
resulting Board-regulated institution.

PART 223--TRANSACTIONS BETWEEN MEMBER BANKS AND THEIR AFFILIATES 
(REGULATION W)

0
37. The authority citation for part 223 continues to read as follows:

    Authority:  12 U.S.C. 371c(b)(1)(E), (b)(2)(A), and (f), 371c-
1(e), 1828(j), 1468(a), and section 312(b)(2)(A) of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (12 U.S.C. 5412).

Subpart A--Introduction and Definitions

0
38. In Sec.  223.3, revise paragraph (d) to read as follows:


Sec.  223.3   What are the meanings of the other terms used in sections 
23A and 23B and this part?

* * * * *
    (d) Capital stock and surplus means the sum of:
    (1) A member bank's tier 1 and tier 2 capital under the capital 
rules of the appropriate Federal banking agency, based on the member 
bank's most recent consolidated Report of Condition and Income filed 
under 12 U.S.C. 1817(a)(3);
    (2) The balance of a member bank's allowance for loan and lease 
losses or allowance for credit losses, as applicable, not included in 
its tier 2 capital under the capital rules of the appropriate Federal 
banking agency, based on the member bank's most recent consolidated 
Report of Condition and Income filed under 12 U.S.C. 1817(a)(3); and
    (3) The amount of any investment by a member bank in a financial 
subsidiary that counts as a covered transaction and is required to be 
deducted from the member bank's capital for regulatory capital 
purposes.
* * * * *

PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL 
(REGULATION Y)

0
39. The authority citation for part 225 continues to read as follows:

    Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-
1831i, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 
3906, 3907 and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805.

0
40. In Sec.  225.127:
0
a. Remove ``225.25(b)(6)'' everywhere it appears and add in its place 
``225.28(b)(12)'' and remove ``Sec.  225.23'' everywhere it appears and 
add in its place ``Sec.  225.23 or Sec.  225.24''; and
0
b. Revise paragraph (h).
    The revision reads as follows:


Sec.  225.127   Investments in corporations or projects designed 
primarily to promote community welfare.

* * * * *
    (h) For purposes of paragraph (f) of this section, five percent of 
the total consolidated capital stock and surplus of a bank holding 
company includes its total investment in projects described in 
paragraph (f) of this section, when aggregated with similar types of 
investments made by depository institutions controlled by the bank 
holding company. The term total consolidated capital stock and surplus 
of the bank holding company means total equity capital and the 
allowance for loan and lease losses or allowance for credit losses, as 
applicable, based on the bank holding company's most recent FR Y-9C 
(Consolidated Financial Statements for Holding Companies) or FR Y-9SP 
(Parent Company Only Financial Statements for Small Holding Companies).

PART 252--ENHANCED PRUDENTIAL STANDARDS (REGULATION YY)

0
41. The authority citation for part 252 continues to read as follows:

    Authority:  12 U.S.C. 321-338a, 481-486, 1467a, 1818, 1828, 
1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1844(c), 3101 et seq., 
3101 note, 3904, 3906-3909, 4808, 5361, 5362, 5365, 5366, 5367, 
5368, 5371.

Subpart B--Company-Run Stress Test Requirements for Certain U.S. 
Banking Organizations With Total Consolidated Assets Over $10 
Billion and Less Than $50 Billion

0
42. In Sec.  252.12, revise paragraph (m) to read as follows:


Sec.  252.12  Definitions.

* * * * *
    (m) Provision for credit losses means:
    (1) Until December 31, 2019:
    (i) With respect to a bank holding company, savings and loan 
holding company, or state member bank that has not adopted the current 
expected credit losses methodology under U.S. generally accepted 
accounting principles (GAAP), the provision for loan and lease losses 
as reported on the FR Y-9C (and as would be reported on the FR Y-9C or 
Call Report, as appropriate, in the current stress test cycle); and,
    (ii) With respect to a bank holding company, savings and loan 
holding company, or state member bank that has adopted the current 
expected credit losses methodology under GAAP, the provision for loan 
and lease losses, as would be calculated and reported on the FR Y-9C or 
Call Report, as appropriate, by a bank holding company, savings and 
loan holding company, or state member bank that has not adopted the 
current expected credit losses methodology under GAAP; and
    (2) Beginning January 1, 2020:
    (i) With respect to a covered company that has adopted the current 
expected credit losses methodology under GAAP, the provision for credit 
losses, as would be reported by the bank holding company, savings and 
loan holding company, or state member bank on the FR Y-9C or Call 
Report, as appropriate, in the current stress test cycle; and
    (ii) With respect to a bank holding company, savings and loan 
holding company, or state member bank that has not adopted the current 
expected credit losses methodology under GAAP, the provision for loan 
and lease losses as would be reported by the bank holding company, 
savings and loan holding company, or state member bank on the FR Y-9C 
or Call Report, as appropriate, in the current stress test cycle.
* * * * *
0
43. In Sec.  252.15, revise paragraphs (a)(1) and (2) to read as 
follows:


Sec.  252.15   Methodologies and practices.

    (a) * * *
    (1) Losses, pre-provision net revenue, provision for credit losses, 
and net income; and
    (2) The potential impact on the regulatory capital levels and 
ratios applicable to the covered bank, and any other capital ratios 
specified by the Board, incorporating the effects of any capital action 
over the planning horizon and maintenance of an allowance for loan 
losses or allowance for credit losses, as appropriate, for credit 
exposures throughout the planning horizon.
* * * * *
0
44. In Sec.  252.16, revise paragraph (b)(3) to read as follows:


Sec.  252.16  Reports of stress test results.

* * * * *
    (b) * * *
    (3) For each quarter of the planning horizon, estimates of 
aggregate losses, pre-provision net revenue, provision for credit 
losses, net income, and regulatory capital ratios;
* * * * *
0
45. In Sec.  252.17, revise paragraphs (b)(1)(iii)(C), (b)(3)(iii)(C), 
and (c)(1) to read as follows:


Sec.  252.17  Disclosure of stress test results.

* * * * *
    (b) * * *
    (1) * * *
    (iii) * * *

[[Page 22334]]

    (C) Provision for credit losses;
* * * * *
    (3) * * *
    (iii) * * *
    (C) Provision for credit losses;
* * * * *
    (c) * * *
    (1) The disclosure of aggregate losses, pre-provision net revenue, 
provision for credit losses, and net income that is required under 
paragraph (b) of this section must be on a cumulative basis over the 
planning horizon.
* * * * *

Subpart E--Supervisory Stress Test Requirements for U.S. Bank 
Holding Companies With $50 Billion or More in Total Consolidated 
Assets and Nonbank Financial Companies Supervised by the Board

0
46. In Sec.  252.42, revise paragraph (l) to read as follows:


Sec.  252.42   Definitions.

* * * * *
    (l) Provision for credit losses means:
    (1) Until December 31, 2019:
    (i) With respect to a covered company that has not adopted the 
current expected credit losses methodology under U.S. generally 
accepted accounting principles (GAAP), the provision for loan and lease 
losses as reported on the FR Y-9C (and as would be reported on the FR 
Y-9C in the current stress test cycle); and
    (ii) With respect to a covered company that has adopted the current 
expected credit losses methodology under GAAP, the provision for loan 
and lease losses, as would be calculated and reported on the FR Y-9C by 
a covered company that has not adopted the current expected credit 
losses methodology under GAAP; and
    (2) Beginning January 1, 2020:
    (i) With respect to a covered company that has adopted the current 
expected credit losses methodology under GAAP, the provision for credit 
losses, as would be reported by the covered company on the FR Y-9C in 
the current stress test cycle; and,
    (ii) With respect to a covered company that has not adopted the 
current expected credit losses methodology under GAAP, the provision 
for loan and lease losses as would be reported by the covered company 
on the FR Y-9C in the current stress test cycle.
* * * * *
0
47. In Sec.  252.45, revise paragraph (b)(2) to read as follows:


Sec.  252.45  Data and information required to be submitted in support 
of the Board's analyses.

* * * * *
    (b) * * *
    (2) Project a company's pre-provision net revenue, losses, 
provision for credit losses, and net income; and pro forma capital 
levels, regulatory capital ratios, and any other capital ratio 
specified by the Board under the scenarios described in Sec.  
252.44(b).
* * * * *

Subpart F--Company-Run Stress Test Requirements for U.S. Bank 
Holding Companies With $50 Billion or More in Total Consolidated 
Assets and Nonbank Financial Companies Supervised by the Board

0
48. In Sec.  252.52, revise paragraph (m) to read as follows:


Sec.  252.52  Definitions.

* * * * *
    (m) Provision for credit losses means:
    (1) Until December 31, 2019:
    (i) With respect to a covered company that has not adopted the 
current expected credit losses methodology under GAAP, the provision 
for loan and lease losses as reported on the FR Y-9C (and as would be 
reported on the FR Y-9C in the current stress test cycle); and
    (ii) With respect to a covered company that has adopted the current 
expected credit losses methodology under GAAP, the provision for loan 
and lease losses, as would be calculated and reported on the FR Y-9C by 
a covered company that has not adopted the current expected credit 
losses methodology under GAAP; and
    (2) Beginning January 1, 2020:
    (i) With respect to a covered company that has adopted the current 
expected credit losses methodology under GAAP, the provision for credit 
losses, as would be reported by the covered company on the FR Y-9C in 
the current stress test cycle; and
    (ii) With respect to a covered company that has not adopted the 
current expected credit losses methodology under GAAP, the provision 
for loan and lease losses as would be reported by the covered company 
on the FR Y-9C in the current stress test cycle.
* * * * *
0
49. In Sec.  252.56, revise paragraphs (a)(1) and (2) to read as 
follows:


Sec.  252.56  Methodologies and practices.

    (a) * * *
    (1) Losses, pre-provision net revenue, provision for credit losses, 
and net income; and
    (2) The potential impact on the regulatory capital levels and 
ratios applicable to the covered bank, and any other capital ratios 
specified by the Board, incorporating the effects of any capital action 
over the planning horizon and maintenance of an allowance for loan 
losses or allowance for credit losses, as appropriate, for credit 
exposures throughout the planning horizon.
* * * * *
0
50. In Sec.  252.58, revise paragraphs (b)(2), (b)(3)(ii), and 
(c)(1)(ii) to read as follows:


Sec.  252.58  Disclosure of stress test results.

* * * * *
    (b) * * *
    (2) A general description of the methodologies used in the stress 
test, including those employed to estimate losses, revenues, provision 
for credit losses, and changes in capital positions over the planning 
horizon;
    (3) * * *
    (ii) Provision for credit losses, realized losses or gains on 
available-for-sale and held-to-maturity securities, trading and 
counterparty losses or gains;
* * * * *
    (c) * * *
    (1) * * *
    (ii) Provision for credit losses, realized losses/gains on 
available-for-sale and held-to-maturity securities, trading and 
counterparty losses, and other losses or gain;
* * * * *

Federal Deposit Insurance Corporation

12 CFR Chapter III

Authority and Issuance

    For the reasons stated in the preamble, the Federal Deposit 
Insurance Corporation proposes to amend chapter III of title 12, Code 
of Federal Regulations as follows:

PART 324--CAPITAL ADEQUACY OF FDIC-SUPERVISED INSTITUTIONS

0
51. The authority citation for part 324 continues to read as follows:

    Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b), 
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n), 
1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102-233, 
105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 
105 Stat. 2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160, 
2233 (12 U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, 
as amended by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 
note); Pub. L. 111-203, 124 Stat. 1376, 1887 (15 U.S.C. 78o-7 note).

0
52. Section 324.2 is amended by:

[[Page 22335]]

0
a. Adding the definition of Allowance for credit losses (ACL) in 
alphabetical order;
0
b. Revising the definitions of Carrying value;
0
c. Adding the definition of Current expected credit losses (CECL) in 
alphabetical order; and
0
d. Revising the definitions of Eligible credit reserves and Identified 
losses and paragraph (2) of the definition of Standardized total risk-
weighted assets.
    The additions and revisions read as follows:


Sec.  324.2  Definitions.

* * * * *
    Allowance for credit losses (ACL) means, with respect to an FDIC-
supervised institution that has adopted CECL, valuation allowances that 
have been established through a charge against earnings or retained 
earnings for expected credit losses on financial assets measured at 
amortized cost and a lessor's net investment in leases that have been 
established to reduce the amortized cost basis of the assets to amounts 
expected to be collected as determined in accordance with GAAP. For 
purposes of this part, allowance for credit losses includes allowances 
for expected credit losses on off-balance sheet credit exposures not 
accounted for as insurance as determined in accordance with GAAP. 
Allowance for credit losses excludes ``allocated transfer risk 
reserves'' and allowances created that reflect credit losses on 
purchased credit-deteriorated assets and available-for-sale debt 
securities.
* * * * *
    Carrying value means, with respect to an asset, the value of the 
asset on the balance sheet of the FDIC-supervised institution as 
determined in accordance with GAAP. For all assets other than 
available-for-sale debt securities or purchased credit-deteriorated 
assets, the carrying value is not reduced by any associated credit loss 
allowance that is determined in accordance with GAAP.
* * * * *
    Current expected credit losses (CECL) means the current expected 
credit losses methodology under GAAP.
* * * * *
    Eligible credit reserves means:
    (1) For an FDIC-supervised institution that has not adopted CECL, 
all general allowances that have been established through a charge 
against earnings to cover estimated credit losses associated with on- 
or off-balance sheet wholesale and retail exposures, including the ALLL 
associated with such exposures, but excluding allocated transfer risk 
reserves established pursuant to 12 U.S.C. 3904 and other specific 
reserves created against recognized losses; and
    (2) For an FDIC-supervised institution that has adopted CECL, all 
general allowances that have been established through a charge against 
earnings or retained earnings to cover expected credit losses 
associated with on- or off-balance sheet wholesale and retail 
exposures, including ACL associated with such exposures. Eligible 
credit reserves exclude allocated transfer risk reserves established 
pursuant to 12 U.S.C. 3904, allowances that reflect credit losses on 
purchased credit-deteriorated assets and available-for-sale debt 
securities, and other specific reserves created against recognized 
losses.
* * * * *
    Identified losses means:
    (1) When measured as of the date of examination of an FDIC-
supervised institution, those items that have been determined by an 
evaluation made by a state or Federal examiner as of that date to be 
chargeable against income, capital and/or general valuation allowances 
such as the allowances for loan and lease losses (examples of 
identified losses would be assets classified loss, off-balance sheet 
items classified loss, any provision expenses that are necessary for 
the FDIC-supervised institution to record in order to replenish its 
general valuation allowances to an adequate level, liabilities not 
shown on the FDIC-supervised institution's books, estimated losses in 
contingent liabilities, and differences in accounts which represent 
shortages) or the allowance for credit losses; and
    (2) When measured as of any other date, those items:
    (i) That have been determined--
    (A) By an evaluation made by a state or Federal examiner at the 
most recent examination of an FDIC-supervised institution to be 
chargeable against income, capital and/or general valuation allowances; 
or
    (B) By evaluations made by the FDIC-supervised institution since 
its most recent examination to be chargeable against income, capital 
and/or general valuation allowances; and
    (ii) For which the appropriate accounting entries to recognize the 
loss have not yet been made on the FDIC-supervised institution's books 
nor has the item been collected or otherwise settled.
* * * * *
    Standardized total risk-weighted assets * * *
    (2) Any amount of the FDIC-supervised institution's allowance for 
loan and lease losses or allowance for credit losses, as applicable, 
that is not included in tier 2 capital and any amount of ``allocated 
transfer risk reserves.''
* * * * *


Sec.  324.10  [Amended]

0
53. Section 324.10(c)(3)(ii)(A) is amended by removing the words 
``allowance for loan and lease losses'' and adding in their place the 
words ``allowance for loan and lease losses or allowance for credit 
losses, as applicable,''.


Sec. Sec.  324.20, 324.22, and 324.124  [Amended]

0
54. Sections 324.20, 324.22, and 324.124 are amended by removing 
``ALLL'' everywhere it appears and adding in its place ``ALLL or ACL, 
as applicable,'', except the second occurrence in Sec.  324.20(d)(3) 
and in Sec.  324.124(a) where ``ALLL or ACL, as applicable'' is added 
in its place.


Sec.  324.63  [Amended]

0
55. Table 5 to Sec.  324.63 is amended by removing ``allowance for loan 
and lease losses,'' and ``allowance for loan and lease losses'' and 
adding in their place ``allowance for loan and lease losses or 
allowance for credit losses, as applicable,'' and removing ``ALLL'' and 
adding in its place ``ALLL or ACL, as applicable''.
0
56. Section 324.173 is amended:
0
a. In Table 2, by adding paragraph (e);
0
b. In Table 3, by revising paragraph (e), redesignating paragraph (f) 
as paragraph (g), and adding a new paragraph (f); and
0
c. In Table 5, by revising paragraphs (a), (e), and (g).
    The additions and revisions read as follows:


Sec.  324.173  Disclosures by certain advanced approaches FDIC-
supervised institutions.

* * * * *

[[Page 22336]]



              Table 2 to Sec.   324.173--Capital Structure
------------------------------------------------------------------------
 
------------------------------------------------------------------------
 
                              * * * * * * *
                         (e)....................  (1) Whether the FDIC-
                                                   supervised
                                                   institution has
                                                   elected to phase in
                                                   recognition of the
                                                   transitional amounts
                                                   as defined in Sec.
                                                   324.300(f).
                                                  (2) The FDIC-
                                                   supervised
                                                   institution's common
                                                   equity tier 1
                                                   capital, tier 1
                                                   capital, and total
                                                   capital without
                                                   including the
                                                   transitional amounts
                                                   as defined in Sec.
                                                   324.300(f).
------------------------------------------------------------------------


               Table 3 to Sec.   324.173--Capital Adequacy
------------------------------------------------------------------------
 
------------------------------------------------------------------------
 
                              * * * * * * *
                         (e)....................  (1) Common equity tier
                                                   1, tier 1 and total
                                                   risk-based capital
                                                   ratios reflecting the
                                                   transition provisions
                                                   described in Sec.
                                                   324.300(f):
                                                  (A) For the top
                                                   consolidated group;
                                                   and
                                                  (2) For each
                                                   depository
                                                   institution
                                                   subsidiary.
                         (f)....................  Common equity tier 1,
                                                   tier 1 and total risk-
                                                   based capital ratios
                                                   reflecting the full
                                                   adoption of CECL:
                                                  (1) For the top
                                                   consolidated group;
                                                   and
                                                  (2) For each
                                                   depository
                                                   institution
                                                   subsidiary.
 
                              * * * * * * *
------------------------------------------------------------------------

* * * * *

     Table 5\1\ to Sec.   324.173--Credit Risk: General Disclosures
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative disclosures  (a)....................  The general
                                                   qualitative
                                                   disclosure
                                                   requirement with
                                                   respect to credit
                                                   risk (excluding
                                                   counterparty credit
                                                   risk disclosed in
                                                   accordance with Table
                                                   7 to Sec.   324.173),
                                                   including:
                                                  (1) Policy for
                                                   determining past due
                                                   or delinquency
                                                   status;
                                                  (2) Policy for placing
                                                   loans on nonaccrual;
                                                  (3) Policy for
                                                   returning loans to
                                                   accrual status;
                                                  (4) Definition of and
                                                   policy for
                                                   identifying impaired
                                                   loans (for financial
                                                   accounting purposes);
                                                  (5) Description of the
                                                   methodology that the
                                                   entity uses to
                                                   estimate its
                                                   allowance for loan
                                                   and lease losses or
                                                   allowance for credit
                                                   losses, as
                                                   applicable, including
                                                   statistical methods
                                                   used where
                                                   applicable;
                                                  (6) Policy for
                                                   charging-off
                                                   uncollectible
                                                   amounts; and
                                                  (7) Discussion of the
                                                   FDIC-supervised
                                                   institution's credit
                                                   risk management
                                                   policy.
 
                              * * * * * * *
                         (e)....................  By major industry or
                                                   counterparty type:
                                                  (1) Amount of impaired
                                                   loans for which there
                                                   was a related
                                                   allowance under GAAP;
                                                  (2) Amount of impaired
                                                   loans for which there
                                                   was no related
                                                   allowance under GAAP;
                                                  (3) Amount of loans
                                                   past due 90 days and
                                                   on nonaccrual;
                                                  (4) Amount of loans
                                                   past due 90 days and
                                                   still accruing; \4\
                                                  (5) The balance in the
                                                   allowance for loan
                                                   and lease losses or
                                                   allowance for credit
                                                   losses, as
                                                   applicable, at the
                                                   end of each period,
                                                   disaggregated on the
                                                   basis of the entity's
                                                   impairment method. To
                                                   disaggregate the
                                                   information required
                                                   on the basis of
                                                   impairment
                                                   methodology, an
                                                   entity shall
                                                   separately disclose
                                                   the amounts based on
                                                   the requirements in
                                                   GAAP; and
                                                  (6) Charge-offs during
                                                   the period.
 
                              * * * * * * *
                         (g)....................  Reconciliation of
                                                   changes in ALLL or
                                                   ACL, as
                                                   applicable.\6\
 
                              * * * * * * *
------------------------------------------------------------------------
\1\ Table 5 to Sec.   324.173 does not cover equity exposures, which
  should be reported in Table 9 to Sec.   324.173.
 
 * * * * * * *
\4\ An FDIC-supervised institution is encouraged also to provide an
  analysis of the aging of past-due loans.
 
 * * * * * * *
\6\ The reconciliation should include the following: A description of
  the allowance; the opening balance of the allowance; charge-offs taken
  against the allowance during the period; amounts provided (or
  reversed) for estimated probable loan losses during the period; any
  other adjustments (for example, exchange rate differences, business
  combinations, acquisitions and disposals of subsidiaries), including
  transfers between allowances; and the closing balance of the
  allowance. Charge-offs and recoveries that have been recorded directly
  to the income statement should be disclosed separately.

* * * * *
0
57. Add Sec.  324.301 to read as follows:


Sec.  324.301  Current expected credit losses (CECL) transition.

    (a) CECL transition provision--(1) An FDIC-supervised institution 
may elect to use a CECL transition provision pursuant to this section 
only if the FDIC-supervised institution records a reduction in retained 
earnings due to the adoption of CECL as of the beginning of the fiscal 
year in which the

[[Page 22337]]

FDIC-supervised institution adopts CECL.
    (2) An FDIC-supervised institution that elects to use the CECL 
transition provision must use the CECL transition provision in the 
first Call Report that includes CECL filed by the FDIC-supervised 
institution after it adopts CECL.
    (3) An FDIC-supervised institution that does not elect to use the 
CECL transition provision as of the first Call Report that includes 
CECL filed as described in paragraph (a)(2) of this section may not 
elect to use the CECL transition provision in subsequent reporting 
periods.
    (b) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Transition period means the three-year period (twelve quarters) 
beginning the first day of the fiscal year in which an FDIC-supervised 
institution adopts CECL.
    (2) CECL transitional amount means the decrease net of any DTAs in 
the amount of an FDIC-supervised institution's retained earnings as of 
the beginning of the fiscal year in which the FDIC-supervised 
institution adopts CECL from the amount of the FDIC-supervised 
institution's retained earnings as of the closing of the fiscal year-
end immediately prior to the FDIC-supervised institution's adoption of 
CECL.
    (3) DTA transitional amount means the increase in the amount of an 
FDIC-supervised institution's DTAs arising from temporary differences 
as of the beginning of the fiscal year in which the FDIC-supervised 
institution adopts CECL from the amount of the FDIC-supervised 
institution's DTAs arising from temporary differences as of the closing 
of the fiscal year-end immediately prior to the FDIC-supervised 
institution's adoption of CECL.
    (4) ACL transitional amount means the difference in the amount of 
an FDIC-supervised institution's ACL as of the beginning of the fiscal 
year in which the FDIC-supervised institution adopts CECL and the 
amount of the FDIC-supervised institution's ALLL as of the closing of 
the fiscal year-end immediately prior to the FDIC-supervised 
institution's adoption of CECL.
    (5) Eligible credit reserves transitional amount means the increase 
in the amount of a FDIC-supervised institution's eligible credit 
reserves as of the beginning of the fiscal year in which the FDIC-
supervised institution adopts CECL from the amount of the FDIC-
supervised institution's eligible credit reserves as of the closing of 
the fiscal year-end immediately prior to the FDIC-supervised 
institution's adoption of CECL.
    (c) Calculation of CECL transition provision. (1) For purposes of 
the election described in paragraph (a)(1) of this section, an FDIC-
supervised institution must make the following adjustments in its 
calculation of regulatory capital ratios:
    (i) Increase retained earnings by seventy-five percent of its CECL 
transitional amount during the first year of the transition period, 
increase retained earnings by fifty percent of its CECL transitional 
amount during the second year of the transition period, and increase 
retained earnings by twenty-five percent of its CECL transitional 
amount during the third year of the transition period;
    (ii) Decrease amounts of DTAs arising from temporary differences by 
seventy-five percent of its DTA transitional amount during the first 
year of the transition period, decrease amounts of DTAs arising from 
temporary differences by fifty percent of its DTA transitional amount 
during the second year of the transition period, and decrease amounts 
of DTAs arising from temporary differences by twenty-five percent of 
its DTA transitional amount during the third year of the transition 
period;
    (iii) Decrease amounts of ACL by seventy-five percent of its ACL 
transitional amount during the first year of the transition period, 
decrease amounts of ACL by fifty percent of its ACL transitional amount 
during the second year of the transition period, and decrease amounts 
of ACL by twenty-five percent of its ACL transitional amount during the 
third year of the transition period; and
    (iv) Increase average total consolidated assets as reported on the 
Call Report for purposes of the leverage ratio by seventy-five percent 
of its CECL transitional amount during the first year of the transition 
period, increase average total consolidated assets as reported on the 
Call Report for purposes of the leverage ratio by fifty percent of its 
CECL transitional amount during the second year of the transition 
period, and increase average total consolidated assets as reported on 
the Call Report for purposes of the leverage ratio twenty-five percent 
of its CECL transitional amount during the third year of the transition 
period.
    (2) For purposes of the election described in paragraph (a)(1) of 
this section, an advanced approaches FDIC-supervised institution must 
make the following additional adjustments to its calculation of 
regulatory capital ratios:
    (i) Increase total leverage exposure for purposes of the 
supplementary leverage ratio by seventy-five percent of its CECL 
transitional amount during the first year of the transition period, 
increase total leverage exposure for purposes of the supplementary 
leverage ratio by fifty percent of its CECL transitional amount during 
the second year of the transition period, and increase total leverage 
exposure for purposes of the supplementary leverage ratio by twenty-
five percent of its CECL transitional amount during the third year of 
the transition period; and
    (ii) An advanced approaches FDIC-supervised institution that has 
completed the parallel run process and has received notification from 
the FDIC pursuant to Sec.  324.121(d) must decrease amounts of eligible 
credit reserves by seventy-five percent of its eligible credit reserves 
transitional amount during the first year of the transition period, 
decrease amounts of eligible credit reserves by fifty percent of its 
eligible credit reserves transitional amount during the second year of 
the transition provision, and decrease amounts of eligible credit 
reserves by twenty-five percent of its eligible credit reserves 
transitional amount during the third year of the transition period.
    (3) An advanced approaches FDIC-supervised institution that has 
completed the parallel run process and has received notification from 
the FDIC pursuant to Sec.  324.121(d), whose amount of expected credit 
loss exceeded its eligible credit reserves immediately prior to the 
adoption of CECL, and that has an increase in common equity tier 1 
capital as of the beginning of the fiscal year in which it adopts CECL 
after including the first year portion of the CECL transitional amount 
must decrease its CECL transitional amount used in paragraph (c) of 
this section by the full amount of its DTA transitional amount.
    (4) Notwithstanding any other requirement in this section, for 
purposes of this paragraph (c)(4), in the event of a business 
combination involving FDIC-supervised institutions where one or both 
FDIC-supervised institutions have elected the treatment described in 
this section:
    (i) If the acquirer FDIC-supervised institution (as determined 
under GAAP) elected the treatment described in this section, the 
acquirer FDIC-supervised institution must continue to use the 
transitional amounts (unaffected by the business combination) that it 
calculated as of the date that it adopted CECL through the end of its 
transition period.
    (ii) If the acquired insured depository institution (as determined 
under GAAP) elected the treatment described in this

[[Page 22338]]

section, any transitional amount of the acquired insured depository 
institution does not transfer to the resulting FDIC-supervised 
institution.

PART 325--ANNUAL STRESS TEST

0
58. The authority citation for part 325 continues to read as follows:

    Authority: 12 U.S.C. 5365(i)(2); 12 U.S.C. 5412(b)(2)(C); 12 
U.S.C. 1818, 12 U.S.C. 1819(a)(Tenth), 12 U.S.C. 1831o, and 12 
U.S.C. 1831p-1.

0
59. Section 325.2(g) is revised to read as follows:


Sec.  325.2  Definitions.

* * * * *
    (g) Provision for credit losses means:
    (1) Until December 31, 2019:
    (i) With respect to a state nonmember bank or state savings 
association that has not adopted the current expected credit losses 
methodology under U.S. generally accepted accounting principles (GAAP), 
the provision for loan and lease losses as reported on the Call Report 
in the current stress test cycle; and,
    (ii) With respect to a state nonmember bank or state savings 
association that has adopted the current expected credit losses 
methodology under GAAP, the provision for loan and lease losses, as 
would be calculated and reported on the Call Report by a state 
nonmember bank or state savings association that has not adopted the 
current expected credit losses methodology under GAAP; and
    (2) Beginning January 1, 2020:
    (i) With respect to a state nonmember bank or state savings 
association that has adopted the current expected credit losses 
methodology under GAAP, the provision for credit losses, as reported in 
the Call Report in the current stress test cycle; and
    (ii) With respect to a state nonmember bank or state savings 
association that has not adopted the current expected credit losses 
methodology under GAAP, the provision for loan and lease losses as 
would be reported in the Call Report in the current stress test cycle.
* * * * *
0
60. Section 325.5(a)(1) and (2) are revised to read as follows:


Sec.  325.5   Methodologies and practices.

    (a) * * *
    (1) Pre-provision net revenues, losses, provision for credit 
losses, and net income; and
    (2) The potential impact on the regulatory capital levels and 
ratios applicable to the covered bank, and any other capital ratios 
specified by the Corporation, incorporating the effects of any capital 
action over the planning horizon and maintenance of an allowance for 
loan losses or allowance for credit losses, as appropriate, for credit 
exposures throughout the planning horizon.
* * * * *
0
61. Section 325.6(b)(1) is revised to read as follows:


Sec.  325.6   Required reports of stress test results to the FDIC and 
the Board of Governors of the Federal Reserve System.

* * * * *
    (b) * * *
    (1) The reports required under paragraph (a) of this section must 
include under the baseline scenario, adverse scenario, severely adverse 
scenario and any other scenario required by the FDIC under this part, a 
description of the types of risks being included in the stress test, a 
summary description of the methodologies used in the stress test, and, 
for each quarter of the planning horizon, estimates of aggregate 
losses, pre-provision net revenue, provision for credit losses, net 
income, and pro forma capital ratios (including regulatory and any 
other capital ratios specified by the FDIC). In addition, the report 
must include an explanation of the most significant causes for the 
changes in regulatory capital ratios and any other information required 
by the FDIC.
* * * * *
0
62. Section 325.7 is amended by revising paragraphs (c)(3) and (d)(1) 
to read as follows:


Sec.  325.7   Publication of stress test results.

* * * * *
    (c) * * *
    (3) Estimates of aggregate losses, pre-provision net revenue, 
provision for credit losses, net income, and pro forma capital ratios 
(including regulatory and any other capital ratios specified by the 
FDIC); and
* * * * *
    (d) * * *
    (1) The disclosure of aggregate losses, pre-provision net revenue, 
provisions for credit losses, and net income under this section must be 
on a cumulative basis over the planning horizon.
* * * * *

PART 327--ASSESSMENTS

0
63. The authority citation for part 327 continues to read as follows:

    Authority:  12 U.S.C. 1441, 1813, 1815, 1817-19, 1821.

Subpart A--In General


Sec.  327.16   [Amended]

0
64. Section 327.16 is amended by removing the words ``allowance for 
loan and lease financing receivable losses (ALLL)'' and adding in their 
place the words ``allowance for loan and lease financing receivable 
losses (ALLL) or allowance for credit losses, as applicable''.

PART 347--INTERNATIONAL BANKING

0
65. The authority citation for part 347 continues to read as follows:

    Authority: 12 U.S.C. 1813, 1815, 1817, 1819, 1820, 1828, 3103, 
3104, 3105, 3108, 3109; Pub L. 111-203, section 939A, 124 Stat. 
1376, 1887 (July 21, 2010) (codified 15 U.S.C. 78o-7 note).

Subpart C--International Lending

0
66. Section 347.303 is amended by revising paragraphs (c)(2) and (4) to 
read as follows:


Sec.  347.303   Allocated transfer risk reserve.

* * * * *
    (c) * * *
    (2) Separate accounting. A banking institution shall account for an 
ATRR separately from the Allowance for Loan and Lease Losses or 
allowance for credit losses, as applicable, and shall deduct the ATRR 
from ``gross loans and leases'' to arrive at ``net loans and lease.'' 
The ATRR must be established for each asset subject to the ATRR in the 
percentage amount specified.
* * * * *
    (4) Alternative accounting treatment. A banking institution need 
not establish an ATRR if it writes down in the period in which the ATRR 
is required, or has written down in prior periods, the value of the 
specified international assets in the requisite amount for each such 
asset. For purposes of this paragraph (c)(4), international assets may 
be written down by a charge to the Allowance for Loan and Lease Losses 
or allowance for credit losses, as applicable, or a reduction in the 
principal amount of the asset by application of interest payments or 
other collections on the asset; provided, that only those international 
assets that may be charged to the Allowance for Loan and Lease Losses 
or allowance for credit losses, as applicable, pursuant to U.S. 
generally accepted accounting principles may be written down by a 
charge to the Allowance for Loan and Lease Losses or allowance for 
credit losses, as applicable. However, the Allowance for Loan and Lease 
Losses or allowance for credit losses, as applicable, must be 
replenished in such amount necessary to restore it to a level which 
adequately provides for the estimated losses

[[Page 22339]]

inherent in the banking institution's loan and lease portfolio.
* * * * *

PART 390--REGULATIONS TRANSFERRED FROM THE OFFICE OF THRIFT 
SUPERVISION

0
67. The authority citation for part 390 continues to read as follows:

    Authority: 12 U.S.C. 1819.

Subpart T--Accounting Requirements


Sec.  390.384  [Amended]

0
68. In the appendix to Sec.  390.384, remove ``provision for loan 
losses'' everywhere it appears and add in its place ``provision for 
loan losses or provision for credit losses, as applicable''.

    Dated: April 17, 2018.
Joseph M. Otting,
Comptroller of the Currency.
    By order of the Board of Governors of the Federal Reserve 
System, April 16, 2018.
Ann E. Misback,
Secretary of the Board.
    Dated at Washington, DC this 17th day of April, 2018.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Valerie Best,
Assistant Executive Secretary.
[FR Doc. 2018-08999 Filed 5-11-18; 8:45 am]
 BILLING CODE 4810-33-6210-01-6714-01-P