Stimulus Bill Extends CECL & TDR Accounting Reliefs
On Sunday night, December 27, 2020, President Trump signed into law the 2021 Consolidated Appropriations Act. The $900 billion relief package includes legislation that extends certain relief provisions from the March 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that were set to expire at the end of this year. Of special note for financial institutions, the eviction moratorium is extended, $286 billion is approved for additional Paycheck Protection Program loans, and special programs have been set up for minority depository institutions and community development financial institutions. See BKD article “Congress Expected to Pass Phase 4 COVID-19 Stimulus Bill“ for a summary of other relief provisions.
Troubled Debt Restructurings (TDR) (Section 540)
CARES Act §4013 permitted financial institutions to suspend TDR assessment and reporting requirements under generally accepted accounting principles for loan modifications. Set to expire on December 31, 2020, this new legislation extends this relief to the earlier of 60 days after the national emergency termination date or January 1, 2022. Insurance companies are not covered by this provision. BKD has prepared articles with additional details on this topic:
The suspension of consideration of whether a modification results in a TDR does not eliminate the assessment of loan collectibility.
CECL & Credit Unions (§541)
The CARES Act exempted an insured depository institution, bank holding company, or any affiliate from applying FASB Accounting Standards Update (ASU) 2016-13, Measurement of Credit Losses on Financial Instruments, including the CECL methodology for estimating allowances for credit losses. Set to expire on December 31, 2020, this new legislation extends this relief to the earlier of the first day of the entity’s fiscal year after the date the national emergency terminates or January 1, 2022. Bloomberg noted that 45 smaller financial institutions took advantage of the relief (see BKD article “Bank Regulators Issue CECL Policy Statement”).
There is some uncertainty as to how this would apply. Further actions and/or clarifications may be required from banking regulators, the SEC, and FASB.
The legislation also extends another CARES Act provision that temporarily changes the National Credit Union Administration’s Central Liquidity Facility (CLF) for credit unions to meet liquidity needs by expanding the ability to borrow up to a value 16 times the CLF’s subscribed capital stock and surplus, up from the statutory limit of 12 times. This section extends the termination of the CLF’s expansion to December 31, 2021. For additional details, see “CECL Capital Relief for Credit Unions Proposed.”
BKD will continue to follow this developing situation. Visit BKD’s COVID-19 Resource Center to learn more. If you have questions about these changes, contact your BKD Trusted Advisor™ today.