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Banks that became subject to CECL this year can delay implementing the standard for two years following an interim final rule issued by federal bank regulators on March 27.

The rule allows banks to mitigate the effects of CECL, the current expected credit loss accounting standard, in their regulatory capital.

“Banking organizations that are required under U.S. accounting standards to adopt CECL this year can mitigate the estimated cumulative regulatory capital effects for up to two years,” the regulators said in a joint statement. “This is in addition to the three-year transition period already in place.”

The joint statement from the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency said banks also could continue to follow the capital transition rule.

The change is effective immediately, and the agencies will accept comments on the CECL interim final rule for 45 days.

FDIC Chairman Jelena McWilliams had sent a letter on March 19 to the Financial Accounting Standards Board (FASB) urging delays in transitioning to the new CECL standard. She asked the FASB to allow financial institutions currently subject to CECL to postpone implementation.

McWilliams said in her letter that changes in the current economy and uncertainty surrounding the future economic forecast could lead banks to face higher increases in credit loss allowances than they had anticipated. She added that growing economic uncertainties and rapidly evolving measures to confront risks “make certain allowance assessment factors potentially more speculative and less reliable at this time.”

Public banks that are SEC filers, excluding small reporting companies, had become subject to the rule this year. Other banks and credit unions have until Dec. 15, 2022, to implement CECL.

Under the new CECL standard, banks essentially had to forecast losses on the life of a loan and anticipate which loans would likely become impaired based on detailed data, impacting the reserves they must keep. The previous standard let banks recognize their loan losses through an incurred model. When an event occurs that impairs a loan and causes it to lose value, the bank reflects this on their financial statements.