OCC issued the new “Allowances for Credit Losses” booklet as part of the Comptroller’s Handbook. The booklet provides OCC examiners with information and examination procedures on allowances for credit losses. The booklet describes the scope of the current expected credit losses (CECL) methodology, risks associated with allowances for credit losses, and seven primary components used to estimate allowances for credit losses.
The booklet discusses documentation and considerations for the following:
- Expected credit losses
- Estimation processes (including validation of and internal controls over these processes)
- Maintenance of appropriate allowances for credit losses
- Responsibilities of boards of directors and management
- Examiner reviews of allowances for credit losses
This booklet applies to the OCC’s supervision of banks that have adopted the CECL methodology under Accounting Standards Codification Topic 326. Most community banks will not adopt the CECL methodology until 2023. The “Allowance for Loan and Lease Losses” booklet of the Comptroller’s Handbook continues to apply to the OCC’s supervision of banks that have not adopted CECL. The booklet is consistent with the “Interagency Policy Statement on Allowances for Credit Losses” conveyed by OCC Bulletin 2020-49 and the “Frequently Asked Questions on the New Accounting Standard on Financial Instruments—Credit Losses” conveyed by OCC Bulletin 2019-17.
Keywords: Americas, US, Banking, CECL, Credit Risk, Credit Losses Standard, Topic 326, Comptroller Handbook, OCC
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