U.S. regulators give banks relief on accounting standard, derivatives rule

WASHINGTON (Reuters) – U.S. banking regulators told banks Friday they could ignore the capital implications of a new accounting standard for two years and adopt early a new, more sensitive way to measure risk in a bid to ensure banks continue lending through the pandemic.

The Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency said the moves are aimed at reducing hurdles for banks to keep lending. By allowing banks to dodge a problematic accounting standard and sooner use a new risk measure for counterparties, regulators hope to “smooth disruptions” that could slow lending.

The regulatory tweaks mark the latest in a long-running effort by regulators to ease rules on banks amid the coronavirus pandemic.

Specifically, regulators said banks will be able to ignore potentially higher capital requirements they might face under a new global accounting standard. The “current expected credit loss” (CECL) standard requires banks to estimate potential future losses on loans, which banks have argued could be particularly problematic in the current stressed environment.

Banks now would have the option of delaying for two years the capital impact of the new standard, followed by a three-year transition period. The regulatory relief comes as Congress has passed sweeping economic aid legislation that would delay the standard altogether for a year.

The prolonged delay offered by regulators will be a particular relief to banks, according to analysts.

“After the period of economic turbulence we’re going to experience in 2020, banks will not be ready to embrace CECL in 2021,” said Ian Katz, a financial policy analyst for the research firm Capital Alpha Partners, in a note to clients Thursday.

Separately, the regulators also agreed to allow banks to adopt their new rule on measuring counterparty risk a quarter early if they want. Regulators said by allowing banks to use the new rule sooner, beginning at the end of March, it would give firms access to a more risk-sensitive framework during a volatile time.