As banks work to implement the current expected credit loss accounting standard, the financial regulatory agencies have finalized an interagency policy statement on allowances for credit losses. The policy statement describes the CECL methodology for determining allowances for credit losses applicable to financial assets measured at amortized costs, including loans held-for-investment, net investments in leases, held-to-maturity debt securities and certain off-balance-sheet credit exposures.
In response to comments from industry stakeholders, including the American Bankers Association, the agencies made several changes to the final policy statement, including those addressing qualitative factor adjustments for debt securities; the use of accounting policy elections related to accrued interest receivable; and auditor independence. The agencies also noted that the Federal Financial Institutions Examination Council will consider whether to modify the instructions for the Call Report regarding the reporting of expected credit losses on off-balance sheet exposures to be consistent with U.S. GAAP reporting requirements after commenters raised concerns over the current inconsistency.
As the CECL implementation moves forward, ABA will continue to seek clarity from the agencies regarding regulatory expectations under the new accounting standard. ABA has long raised concerns about the potential economic consequences of CECL and the significant cost it could impose on community banks in particular.