US Agencies Issue Policy Statement on Allowance for Credit Losses
US Agencies (FDIC, FED, NCUA, and OCC) issued a policy statement on allowance for credit losses and a guidance on credit risk review systems. The policy statement on credit loss allowances describes the measurement of expected credit losses using the current expected credit losses (CECL) methodology and updates the concepts and practices detailed in the existing supervisory guidance that remain applicable. The guidance on credit risk review systems discusses sound management of credit risk; a system of independent, ongoing credit review; and appropriate communication about the performance of the loan portfolio of an institution to its management and board of directors.
The final policy statement is intended to promote consistency in the interpretation and application of FASB credit losses accounting standard, as codified in the FASB Accounting Standards Codification Topic 326. This accounting standard is covered in the FASB Accounting Standards Update 2016-13 and it introduces the current expected credit losses (CECL) methodology. It describes the CECL methodology for determining allowances for credit losses that are applicable to loans held-for-investment, net investments in leases, and held-to-maturity debt securities accounted for at amortized cost. It also describes the estimation of the allowances for credit losses for an available-for-sale debt security in accordance with the Subtopic 326-30. The final policy statement becomes applicable to an institution upon the adoption of Topic 326 by than institution. After the Topic 326 becomes effective for all institutions, the agencies will rescind the Allowance for Loan and Lease Losses policy statements.
The final guidance on credit risk review systems outlines principles that an institution should consider when developing and maintaining an effective credit risk review system. It also describes a broad set of practices that can be used either within a dedicated unit or across multiple units throughout an institution to form a credit risk review system that is consistent with the safe and sound lending practices. The guidance is relevant to all institutions supervised by the agencies and aligns with the Interagency Guidelines Establishing Standards for Safety and Soundness; the interagency guidelines set out safety and soundness standards for insured depository institutions to establish a system for independent, ongoing credit risk review, including regular communication to its management and board of directors. The agencies have adopted the guidance on credit risk review systems post certain revisions to the proposed guidance from October 2019. The final guidance is intended to be flexible and consistent with CECL, but it does not incorporate the FASB Topic 326.
Related Links
Keywords: Americas, US, Banking, Accounting, Credit Risk, CECL, IFRS 9, Credit Losses Standard, Topic 326, ALLL, US Agencies
Featured Experts
Blake Coules
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.
Anna Krayn
CECL adoption expert; engagement manager for loss estimation, internal risk capability enhancement, and counterparty credit risk management
Previous Article
SBV Releases Measures to Address Impact of COVID-19 PandemicRelated Articles
US Agencies Issue Regulatory Updates, FDIC Launches Tech Sprint
The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.
EBA Issues Guide on Bank Resolvability, Consults on Transferability
The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).
HKMA Extends Repayment for Trade Facilities, Consults on Crypto-Assets
The Hong Kong Monetary Authority (HKMA) published a circular, along with the reporting form and instructions, for self-assessment, by authorized institutions, of compliance with the Code of Banking Practice 2021.
FCA Registers Securitization Repositories; PRA Issues 2022 Priorities
The Financial Conduct Authority (FCA) decided to register European DataWarehouse Ltd and SecRep Limited as securitization repositories under the UK Securitization Regulation, with effect from January 17, 2022.
EC Regulation Sets Out Methods for Measuring K-Factors Under IFR
The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR.
BIS Studies How Platform Models Impact Financial Stability & Inclusion
The Bank of International Settlements (BIS) published a paper that assesses the ways in which platform-based business models can affect financial inclusion, competition, financial stability and consumer protection.
ESAs Publish List of Financial Conglomerates for 2021
The European Supervisory Authorities (ESAs) published the list of identified financial conglomerates for 2021.
APRA Licenses Two More Banks, Reduces Committed Liquidity Facility
The Australian Prudential Regulation Authority (APRA) updated the list of authorized deposit-taking institutions, granting license to Barclays Bank PLC and Crédit Agricole Corporate and Investment Bank to operate as foreign authorized deposit-taking institutions under the Banking Act 1959.
EU Issues SII Corrigendum; EIOPA Assesses SII Reporting Exemptions
EU published, in the Official Journal of the European Union, a corrigendum to the Delegated Regulation 2015/35, which supplements Solvency II Directive (2009/138/EC).
EBA Opines on Impact of De-Risking and Associated AML/CFT Challenges
The European Banking Authority (EBA) published an Opinion on the scale and impact of de-risking in European Union and the steps that competent authorities should take to tackle unwarranted de-risking.
