Bank Capital Requirements: Federal Banking Agencies Release Final Rule Regarding the Implementation of CECL, and Federal Reserve Provides Guidance on CECL and CCAR

Sullivan & Cromwell LLP - December 27, 2018

On December 21, the Federal Reserve, the FDIC and the OCC released a joint final rule to revise their regulatory capital rules to address the upcoming implementation of the current expected credit losses (“CECL”) accounting standard under U.S. GAAP, provide an optional three-year phase-in period for the day-one adverse regulatory capital effects that banking organizations are expected to experience upon adopting CECL, and require the use of CECL in stress tests beginning with the 2020 capital planning and stress testing cycle for banking organizations (except for those non-SEC reporting companies that have not then adopted CECL). The final rule is the same as the joint proposal released by the agencies in April of this year, which is described in our earlier Memorandum to Clients, with one change in terminology. The final rule will become effective on April 1, 2019, though a banking organization may choose to adopt the final rule early starting with the first quarter of 2019. For SEC reporting companies with December 31 fiscal-year ends, CECL will become effective beginning with the first quarter of 2020. For other banking organizations, CECL will first become effective for the first fiscal year beginning after December 15, 2020 or 2021, depending on whether the organization is a public business entity under U.S. GAAP.