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Banking Alert

January 07, 2020

Current Expected Credit Loss (“CECL”) Model

In November 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-10, to finalize the effective date of implementation for CECL, derivatives and hedging, and leases.

As previously noted in the FASB’s proposal, the implementation date of CECL has been deferred as follows:

  • Bucket One: Public business entities that meet the definition of an SEC filer (excluding smaller reporting companies (or “SRCs”)) – fiscal year beginning after December 15, 2019, including interim periods within that fiscal year.
  • Bucket Two: All other entities – fiscal year beginning after December 15, 2022, including interim periods within that fiscal year.

The ASU also lays out the FASB’s philosophy on the implementation of major accounting updates. The effective dates of major accounting updates will be staggered between the two buckets noted above. It is generally expected that the effective date of implementation for Bucket Two will be staggered at least two years from the date of implementation for Bucket One.

In addition, for major updates that currently exist (i.e. as of November 2019), but are not yet effective, the ASU notes that the eligibility to be an SRC will be determined based on the entity’s most recent determination of SRC status (in accordance with SEC regulations) as of November 15, 2019. For future major updates, the one-time SRC determination (to implement the accounting update) will be on the entity’s most recent SRC determination as of the date the final accounting update has been issued.

Brokered Deposits and the Impact on Bank-Fintech Partnerships

On December 11, 2019, the FDIC Chairman Jelena McWilliams shared her insights on brokered deposits and the new business model of banks and fintech firms partnering together, at the Brookings Institution. This keynote address was Chairman McWilliams first major policy speeches.

Due to the failure of Pacific Coast Bank and Penn Square Bank in 1982, and numerous other banks and thrifts in the next few years, the FDIC amended the Federal Deposit Insurance Act (“FDIA”) in 1989. Since then, when Section 29 of the FDIA came into effect, the banking market has changed significantly. The goal of the proposed rulemaking from the FDIC would be to modernize the regulations surrounding brokered deposits, which are quite complex to navigate. In the words of Chairman McWilliams:

“The result was the development of a fragmented, opaque legal regime that exists outside of the FDIC’s public-facing regulations, understood by only a select few.

It reminds me of how my good friend Randy Quarles described the Federal Reserve’s treatment of ‘control’ under the Bank Holding Company Act, which he said was understood only by those with ‘a long apprenticeship in the subtle hermeneutics of Federal Reserve lore, receiving the wisdom of their elders through oral tradition like the tribes of the Orinoco.’ If English were my first language, maybe I would have a greater appreciation for subtle hermeneutics, but I suspect many of you will need to look up where the Orinoco is too. Nonetheless, it seems like a suitable description of the FDIC’s brokered deposits regime.”

Chairman McWilliams stated the four goals of the proposed rulemaking:

  • To develop a framework to encourage innovation and allow banks to serve customers the way they want to be served. This would clarify that partnerships where the consumer still maintains a direct relationship with a bank would not (generally) result in a brokered deposit.
  • To take a balanced approach to Section 29 that tracks the letter and spirit of the law. The proposed rulemaking will hopefully lead to more consistent conclusions that are more easily determined.
  • To minimize risks to the Deposit Insurance Fund, by ensuring that problems that led to Section 29 being enacted are still addressed.
  • To establish an administrative process that emphasizes consistency and efficiency. The proposal will establish an easy to understand bright line test, as well as an application process when determining whether a product is a brokered deposit.

On December 12, 2019 the FDIC issued a notice of proposed rulemaking to modernize brokered deposit regulations. Comments will be due within 60 days of publication in the federal register. The new proposed rule will still be somewhat complex, but will attempt to address the four goals set out above. In general, the proposal will not stifle further innovation (i.e. partnerships with banks and non-bank entities); and will add to the clarity of what a brokered deposit is.

Stay tuned for further details as comments are received, and the proposal moves forward through the legislative process. For more information contact Mazars USA’s banking practice at

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