United States

Final interagency policy statement on allowances for credit losses

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The Office of the Comptroller of the Currency, Federal Reserve System, Federal Deposit Insurance Corporation and National Credit Union Administration have finalized an interagency Policy Statement in response to the issuance of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL). The Policy Statement describes the CECL methodology for determining allowances for credit losses (ACLs) applicable to financial assets measured at amortized cost basis, including loans held-for-investment, net investments in leases, held-to-maturity debt securities and certain off-balance sheet credit exposures. The Policy Statement also addresses the accounting for impairment of available-for-sale debt securities in accordance with Subtopic 326-30 of the FASB’s Accounting Standards Codification (ASC), “Financial Instruments – Credit Losses – Available-for-Sale Debt Securities.”  

The final Policy Statement does not prescribe the requirements for estimating expected credit losses, but rather describes the measurement of expected credit losses in accordance with ASC 326, and the design, documentation and validation of expected credit losses, including internal controls over these processes; the maintenance of appropriate ACLs; and responsibilities of boards of directors and management and examiner reviews of ACLs. The final Policy Statement becomes applicable to an institution upon adoption of ASU 2016-13 and, at that time, any existing policy statements on the incurred loss model (e.g., the December 2006 Interagency Policy Statement on the Allowance for Loan and Lease Losses) are considered to be superseded.  

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