Sarah. Cooke, Thursday, October 24
The FASB Current Expected Credit Losses accounting change, better known as CECL, is delayed but moving forward whether we like it or not. The Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency have requested comment on a proposed Interagency Policy Statement on Allowances for Credit Losses, as well as guidance on credit risk review systems, related to CECL. Banks, credit unions and their constituents have 60 days to submit comments following the Oct. 17 publication date.
The Policy Statement on Allowance for Credit Losses would codify CECL accounting methodology instead of the incurred loss methodology for financial assets measured at amortized cost, net investments in leases, and certain off-balance-sheet credit exposures, and modify the accounting for impairment on available for sale debt securities as outlined in FASB ASC Topic 326 . Larger banks have already been subject to CECL compliance, but because of problems with implementation, smaller financial institutions received a reprieve when the CECL implementation date was delayed from yearend 2019 to yearend 2021.
Specific feedback requested by the NCUA and other banking regulators includes:
Banks, credit unions and their trade associations are all sure to have something to say about these! Submit your comments so your voices are heard on the record.
In addition, the agency is seeking comment regarding guidance on risk management systems. Agencies are looking to provide guidance on safe and sound practices for developing and maintaining credit risk review systems, understanding the scope of these systems may vary based on loan type, size and scope. The updated guidance reaffirms prior practices (qualifications, independent credit review personnel, frequency, depth of review, etc.) and is intended to account for lending industry changes in reviewing and determining creditworthiness. Additionally, the guidance allows for further criteria to include borrower relationships with the financial institution, loan type and size, other risk factors, and provides guidance on communicating information. Comments requested include:
Too many times, we complain about how Washington in handling our businesses. Banks and credit unions are so highly regulated, it is a wonder sometimes that you can serve consumers as well as you do. That said, financial institutions need to act. First, by commenting for the regulators on these CECL implementation steps, and second, by getting your data together for compliance. Ser Tech’s ProAct can help. Contact us today to learn more.