(July 16, 2021) Summaries of two final rules – on transition to the new current expected credit loss (CECL) accounting standard, and on derivatives – have been posted on the NASCUS website. Both summaries are available to members only.
At its June meeting, the NCUA Board adopted a final rule intended to mitigate the day-one effect of the CECL accounting standard on capital levels at credit unions. The new rule takes effect Aug. 2 (although NCUA, when the final was adopted, that credit unions could begin applying it immediately); the CECL standard takes effect for most credit unions in January 2023.
Supported by NASCUS, the rule establishes a three-year phase-in period for adverse effects on credit unions’ regulatory capital triggered by the effect of the accounting standard. Federal credit unions with less than $10 million in assets and also state credit unions (if allowed by their state regulations), would be exempted from using the standard to figure loan loss reserves.
The final rule has two changes from the proposal, as advanced by NASCUS. First, the rule makes a technical change (for clarity) removing references to specific calendar dates in the transition period for the phase in. The rule now consistently refers to fiscal years. The second change clarifies that state-chartered FICUs with less than $10 million in assets and that are required by state law to comply with generally accepted accounting practices (GAAP) are eligible for the transition phase-in.
However, NASCUS also noted that the accounting standard remains of concern. “NASCUS, many state credit union regulators, and many state credit union system stakeholders remain concerned that the CECL methodology will be counter-productive when implemented for the credit union system,” NASCUS wrote.
The derivatives rule, approved unanimously by the NCUA Board at its May meeting, makes some changes from the proposal issued in December. The rule affects a limited number of federal credit unions directly (NCUA estimates about 30 FCUs are engaged with derivatives now); it generally offers more flexibility for credit union involvement in the investment vehicles, primarily to manage interest rate risk. State-chartered credit unions follow rules set by their individual regulators.
NASCUS had urged the agency, in its comment on the proposal, to eliminate redundant supervisory notice requirements, where applicable, by providing an exemption from its notice requirement for FISCUs in states where pre-approval or pre-notification is required to be given to the state regulator. NCUA declined to make that change, arguing that “the current burden to a FISCU is unchanged as the FISCU is only notifying the applicable (NCUA) Regional Director after entering into its first Derivative transaction compared to the current requirement of notifying the Regional Director at least 30 days before it begins engaging in Derivatives.”