ABA Cautions FASB on Enhanced Disclosures as Replacement for TDRs

ABA today expressed support for a Financial Accounting Standards Board proposal that would eliminate the current accounting guidance for troubled debt restructurings, or TDRs, but cautioned that proposed expanded disclosure requirements for loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty could “unintentionally introduce additional cost and complexity that outweighs the benefits of eliminating TDRs.”

“Under current GAAP, banks provide specific disclosures for modified loans to customers in financial difficulty in which a concession was granted. In contrast, the [proposal]removes consideration of concessions,” ABA explained. “The proposed requirements would, thus, include modifications that do not affect cash flows, common financing to troubled borrowers that may otherwise reflect business as usual, as well as loss mitigation that may not necessarily involve a concession. As a result, many more loans will be subject to the proposed disclosures. ABA believes that the proposed broad requirements will require significant new processes and the resulting information will often obscure an investor’s analysis of credit risk.”

ABA urged FASB to reconsider the scope of the disclosures and the purpose of the modifications that would trigger disclosure requirements. The association also cautioned against the use of prescriptive disclosure guidance, asked FASB to rethink its transition method and expressed support for the board’s conclusion that vintage disclosure should not be expanded to include cumulative write-off data.