NCUA and FDIC Issues CECL Policy and Guidance for Public Comment
Get compliant and get your voices heard!
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:
- Does the proposed interagency policy statement clearly describe the measurement of expected credit losses under CECL in accordance with FASB ASC Topic 326? Why or why not? If not, what additional information is needed? What information should be omitted from the policy statement?
- Does the proposed interagency policy statement clearly describe the measurement of credit losses on impaired AFS debt securities in accordance with FASB ASC Topic 326? Why or why not? If not, what additional information is needed? What information should be omitted from the policy statement?
- Does the proposed interagency policy statement clearly communicate supervisory expectations for designing, documenting, and validating expected credit loss estimation processes, internal controls over ACLs, and maintaining appropriate ACLs?
- Has the proposed interagency policy statement appropriately included concepts and practices detailed in the existing ALLL policy statements that also are relevant under FASB ASC Topic 326? If not, what additional information should also be included?
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:
- To what extent does the proposed credit review guidance reflect current sound practices for an institution’s credit risk review activities? What elements should be added or removed, and why?
- To what extent is the proposed credit review guidance appropriate for institutions of all asset sizes? What elements should be added or removed for institutions of differing sizes, and why?
- What, if any, additional factors should the agencies consider incorporating into the guidance to help achieve a sufficient degree of independence and why? To what extent does the approach described for small or rural institutions with fewer resources or employees provide for an appropriate degree of independence in the credit review function? What if any modifications should the agencies consider and why?
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.