CECL impact delayed two years

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Banks that implemented a new accounting standard for expected credit losses just got a big break from federal regulators.

The Federal Reserve, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. are allowing lenders that this year were required to convert to the Current Expected Credit Losses standard, or CECL, to delay any corresponding capital hits until 2022.

After that, lenders would have three years to phase in any capital hits that would have taken place during the two-year delay. Lenders would need to calculate that on a quarterly basis, using a 25% scaling factor.

“Various analyses suggest that credit losses under CECL can be expected to be higher than under the incurred loss methodology,” the agencies said in the interim final rule, which went into effect immediately.

Banks are not required to implement the new two-year delay. They can stay the course using February 2019 guidance that lets them phase in CECL's day-one impact on regulatory capital over three years.

The regulators said in a Friday press release that the changes are designed to “support lending to households and businesses.” They will accept comments on the interim final rule over the next 45 days.

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