32991Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Rules and Regulations
1 84 FR 55510 (October 17, 2019).
2 See section 37(a) of the Federal Deposit
Insurance Act and section 202(a) of the Federal
Credit Union Act. Under these statutory provisions,
the accounting principles applicable to reports or
statements required to be filed by all insured
depository institutions with the Federal banking
agencies (OCC, Board, FDIC) or by all federally
insured credit unions with assets of $10 million or
more with the NCUA Board must be uniform and
consistent with GAAP. Furthermore, regardless of
asset size, all federally insured credit unions must
comply with GAAP for certain financial reporting
requirements relating to charges for loan losses. See
12 U.S.C. 1831n(a)(2)(A), 12 U.S.C. 1782(a)(6)(C),
and 12 CFR 702.402(d).
3 If the agencies determine that a particular
accounting principle within GAAP, including a
private company accounting alternative, is
inconsistent with the statutorily specified
supervisory objectives, those agencies may
prescribe an accounting principle for regulatory
reporting purposes that is no less stringent than
GAAP. In such a situation, an institution would not
be permitted to use that particular private company
accounting alternative or other accounting principle
within GAAP for regulatory reporting purposes.
4 See Appendix A to 12 CFR part 30 (OCC),
Appendix D to 12 CFR part 208 (Board), and
Appendix A to 12 CFR part 364 (FDIC), which were
adopted by the banking agencies for depository
institutions pursuant to section 39 of the Federal
Deposit Insurance Act. See 12 U.S.C. 1831p–1.
Federally insured credit unions should refer to
section 206(b)(1) of the Federal Credit Union Act
(12 U.S.C. 1786) and 12 CFR 741.3.
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 30
[Docket No. ID OCC–2019–0013]
FEDERAL RESERVE SYSTEM
12 CFR Part 208
[Docket No. OP–1680]
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 364
RIN 3064–ZA10
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Part 741
RIN 3133–AF05
Interagency Policy Statement on
Allowances for Credit Losses
AGENCY: Office of the Comptroller of the
Currency (OCC), Treasury; Board of
Governors of the Federal Reserve
System (Board); Federal Deposit
Insurance Corporation (FDIC); and
National Credit Union Administration
(NCUA).
ACTION: Final interagency policy
statement.
SUMMARY: The Office of the Comptroller
of the Currency, the Board of Governors
of the Federal Reserve System, the
Federal Deposit Insurance Corporation,
and the National Credit Union
Administration (collectively, the
agencies) are issuing an interagency
policy statement on allowances for
credit losses (ACLs). The agencies are
issuing this interagency policy
statement in response to changes to U.S.
generally accepted accounting
principles (GAAP) as promulgated by
the Financial Accounting Standards
Board (FASB) in Accounting Standards
Update (ASU) 2016–13, Financial
Instruments—Credit Losses (Topic 326):
Measurement of Credit Losses on
Financial Instruments and subsequent
amendments issued since June 2016.
These updates are codified in
Accounting Standards Codification
(ASC) Topic 326, Financial
Instruments—Credit Losses (FASB ASC
Topic 326). This interagency policy
statement describes the measurement of
expected credit losses under the current
expected credit losses (CECL)
methodology and the accounting for
impairment on available-for-sale debt
securities in accordance with FASB
ASC Topic 326; the design,
documentation, and validation of
expected credit loss estimation
processes, including the internal
controls over these processes; the
maintenance of appropriate ACLs; the
responsibilities of boards of directors
and management; and examiner reviews
of ACLs.
DATES: The interagency policy statement
is available on June 1, 2020.
FOR FURTHER INFORMATION CONTACT:
OCC: Amanda Freedle, Senior
Accounting Policy Advisor, Office of the
Chief Accountant, (202) 649–6280; or
Kevin Korzeniewski, Counsel, Chief
Counsel’s Office, (202) 649–5490; or for
persons who are hearing impaired, TTY,
(202) 649–5597.
BOARD: Lara Lylozian, Chief
Accountant-Supervision, (202) 475–
6656; or Kevin Chiu, Accounting Policy
Analyst, (202) 912–4608, Division of
Supervision and Regulation; or David
W. Alexander, Senior Counsel, (202)
452–2877; or Asad Kudiya, Senior
Counsel, (202) 475–6358, Legal
Division, Board of Governors of the
Federal Reserve System, 20th and C
Streets NW, Washington, DC 20551. For
the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), (202) 263–4869.
FDIC: Shannon Beattie, Chief,
Accounting and Securities Disclosure
Section, (202) 898–3952; or John Rieger,
Chief Accountant, (202) 898–3602; or
Andrew Overton, Examination
Specialist (Bank Accounting), (202)
898–8922; Division of Risk Management
Supervision; or Michael Phillips,
Counsel, (202) 898–3581, Legal
Division, Federal Deposit Insurance
Corporation, 550 17th Street NW,
Washington, DC 20429.
NCUA: Technical information: Alison
Clark, Chief Accountant, Office of
Examination and Insurance, (703) 518–
6611 or Legal information: Ariel Pereira,
Staff Attorney, Office of General
Counsel, (703) 548–2778. National
Credit Union Administration, 1775
Duke Street, Alexandria, VA 22314.
SUPPLEMENTARY INFORMATION:
I. Introduction
On October 17, 2019, the agencies
requested comment for 60 days on a
proposed Interagency Policy Statement
on Allowances for Credit Losses 1
(proposed Policy Statement), which
would maintain conformance with
GAAP and FASB ASC Topic 326.
FASB ASC Topic 326 replaces the
incurred loss methodology for financial
assets measured at amortized cost, net
investments in leases, and certain off-
balance-sheet credit exposures, and
modifies the accounting for impairment
on available-for-sale debt securities.
FASB ASC Topic 326 applies to all
banks, savings associations, credit
unions, and financial institution
holding companies (collectively,
institutions), regardless of size, that file
regulatory reports for which the
reporting requirements conform to
GAAP.2 The agencies are maintaining
conformance with GAAP and
consistency with FASB ASC Topic 326
through the issuance of the final
Interagency Policy Statement on
Allowances for Credit Losses (final
Policy Statement).3
The agencies have issued guidelines
establishing standards for safety and
soundness, including operational and
managerial standards that address such
matters as internal controls and
information systems, an internal audit
system, loan documentation, credit
underwriting, asset quality, and
earnings that should be appropriate for
an institution’s size, complexity, and
risk profile.4 The principles described
in the final Policy Statement are
consistent with these guidelines.
The final Policy Statement does not
prescribe requirements for estimating
expected credit losses. It describes the
measurement of expected credit losses
in accordance with FASB ASC Topic
326; the design, documentation, and
validation of expected credit loss
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jbell on DSKJLSW7X2PROD with RULES
1 84 FR 55510 (October 17, 2019).
2 See section 37(a) of the Federal Deposit
Insurance Act and section 202(a) of the Federal
Credit Union Act. Under these statutory provisions,
the accounting principles applicable to reports or
statements required to be filed by all insured
depository institutions with the Federal banking
agencies (OCC, Board, FDIC) or by all federally
insured credit unions with assets of $10 million or
more with the NCUA Board must be uniform and
consistent with GAAP. Furthermore, regardless of
asset size, all federally insured credit unions must
comply with GAAP for certain financial reporting
requirements relating to charges for loan losses. See
12 U.S.C. 1831n(a)(2)(A), 12 U.S.C. 1782(a)(6)(C),
and 12 CFR 702.402(d).
3 If the agencies determine that a particular
accounting principle within GAAP, including a
private company accounting alternative, is
inconsistent with the statutorily specified
supervisory objectives, those agencies may
prescribe an accounting principle for regulatory
reporting purposes that is no less stringent than
GAAP. In such a situation, an institution would not
be permitted to use that particular private company
accounting alternative or other accounting principle
within GAAP for regulatory reporting purposes.
4 See Appendix A to 12 CFR part 30 (OCC),
Appendix D to 12 CFR part 208 (Board), and
Appendix A to 12 CFR part 364 (FDIC), which were
adopted by the banking agencies for depository
institutions pursuant to section 39 of the Federal
Deposit Insurance Act. See 12 U.S.C. 1831p–1.
Federally insured credit unions should refer to
section 206(b)(1) of the Federal Credit Union Act
(12 U.S.C. 1786) and 12 CFR 741.3.
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 30
[Docket No. ID OCC–2019–0013]
FEDERAL RESERVE SYSTEM
12 CFR Part 208
[Docket No. OP–1680]
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 364
RIN 3064–ZA10
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Part 741
RIN 3133–AF05
Interagency Policy Statement on
Allowances for Credit Losses
AGENCY: Office of the Comptroller of the
Currency (OCC), Treasury; Board of
Governors of the Federal Reserve
System (Board); Federal Deposit
Insurance Corporation (FDIC); and
National Credit Union Administration
(NCUA).
ACTION: Final interagency policy
statement.
SUMMARY: The Office of the Comptroller
of the Currency, the Board of Governors
of the Federal Reserve System, the
Federal Deposit Insurance Corporation,
and the National Credit Union
Administration (collectively, the
agencies) are issuing an interagency
policy statement on allowances for
credit losses (ACLs). The agencies are
issuing this interagency policy
statement in response to changes to U.S.
generally accepted accounting
principles (GAAP) as promulgated by
the Financial Accounting Standards
Board (FASB) in Accounting Standards
Update (ASU) 2016–13, Financial
Instruments—Credit Losses (Topic 326):
Measurement of Credit Losses on
Financial Instruments and subsequent
amendments issued since June 2016.
These updates are codified in
Accounting Standards Codification
(ASC) Topic 326, Financial
Instruments—Credit Losses (FASB ASC
Topic 326). This interagency policy
statement describes the measurement of
expected credit losses under the current
expected credit losses (CECL)
methodology and the accounting for
impairment on available-for-sale debt
securities in accordance with FASB
ASC Topic 326; the design,
documentation, and validation of
expected credit loss estimation
processes, including the internal
controls over these processes; the
maintenance of appropriate ACLs; the
responsibilities of boards of directors
and management; and examiner reviews
of ACLs.
DATES: The interagency policy statement
is available on June 1, 2020.
FOR FURTHER INFORMATION CONTACT:
OCC: Amanda Freedle, Senior
Accounting Policy Advisor, Office of the
Chief Accountant, (202) 649–6280; or
Kevin Korzeniewski, Counsel, Chief
Counsel’s Office, (202) 649–5490; or for
persons who are hearing impaired, TTY,
(202) 649–5597.
BOARD: Lara Lylozian, Chief
Accountant-Supervision, (202) 475–
6656; or Kevin Chiu, Accounting Policy
Analyst, (202) 912–4608, Division of
Supervision and Regulation; or David
W. Alexander, Senior Counsel, (202)
452–2877; or Asad Kudiya, Senior
Counsel, (202) 475–6358, Legal
Division, Board of Governors of the
Federal Reserve System, 20th and C
Streets NW, Washington, DC 20551. For
the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), (202) 263–4869.
FDIC: Shannon Beattie, Chief,
Accounting and Securities Disclosure
Section, (202) 898–3952; or John Rieger,
Chief Accountant, (202) 898–3602; or
Andrew Overton, Examination
Specialist (Bank Accounting), (202)
898–8922; Division of Risk Management
Supervision; or Michael Phillips,
Counsel, (202) 898–3581, Legal
Division, Federal Deposit Insurance
Corporation, 550 17th Street NW,
Washington, DC 20429.
NCUA: Technical information: Alison
Clark, Chief Accountant, Office of
Examination and Insurance, (703) 518–
6611 or Legal information: Ariel Pereira,
Staff Attorney, Office of General
Counsel, (703) 548–2778. National
Credit Union Administration, 1775
Duke Street, Alexandria, VA 22314.
SUPPLEMENTARY INFORMATION:
I. Introduction
On October 17, 2019, the agencies
requested comment for 60 days on a
proposed Interagency Policy Statement
on Allowances for Credit Losses 1
(proposed Policy Statement), which
would maintain conformance with
GAAP and FASB ASC Topic 326.
FASB ASC Topic 326 replaces the
incurred loss methodology for financial
assets measured at amortized cost, net
investments in leases, and certain off-
balance-sheet credit exposures, and
modifies the accounting for impairment
on available-for-sale debt securities.
FASB ASC Topic 326 applies to all
banks, savings associations, credit
unions, and financial institution
holding companies (collectively,
institutions), regardless of size, that file
regulatory reports for which the
reporting requirements conform to
GAAP.2 The agencies are maintaining
conformance with GAAP and
consistency with FASB ASC Topic 326
through the issuance of the final
Interagency Policy Statement on
Allowances for Credit Losses (final
Policy Statement).3
The agencies have issued guidelines
establishing standards for safety and
soundness, including operational and
managerial standards that address such
matters as internal controls and
information systems, an internal audit
system, loan documentation, credit
underwriting, asset quality, and
earnings that should be appropriate for
an institution’s size, complexity, and
risk profile.4 The principles described
in the final Policy Statement are
consistent with these guidelines.
The final Policy Statement does not
prescribe requirements for estimating
expected credit losses. It describes the
measurement of expected credit losses
in accordance with FASB ASC Topic
326; the design, documentation, and
validation of expected credit loss
VerDate Sep<11>2014 16:09 May 29, 2020 Jkt 250001 PO 00000 Frm 00015 Fmt 4700 Sfmt 4700 E:\FR\FM\01JNR1.SGM 01JNR1
jbell on DSKJLSW7X2PROD with RULES
32992 Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Rules and Regulations
5 For example, the agencies received comments
requesting exemptions from applying FASB ASC
Topic 326. Other commenters requested
adjustments to regulatory capital requirements
upon adoption of FASB ASC Topic 326.
6 As noted in ASU 2019–10, FASB ASC Topic 326
is effective for fiscal years beginning after December
15, 2019, including interim periods within those
fiscal years, for public business entities that meet
the definition of a Securities Exchange Commission
(SEC) filer, excluding entities eligible to be small
reporting companies as defined by the SEC. FASB
ASC Topic 326 is effective for all other entities for
fiscal years beginning after December 15, 2022,
including interim periods within those fiscal years.
For all entities, early application of FASB ASC
Topic 326 is permitted as set forth in ASU 2016–
13.
7 See Financial Institution Letter (FIL) 105–2006
(FDIC); Supervision and Regulation (SR) Letter 06–
17 (FRB); Accounting Bulletin 06–01 (NCUA); and
Bulletin 2006–47 (OCC). The final Policy Statement
does not affect Attachment 1 to the December 2006
Interagency Policy Statement on the Allowance for
Loan and Lease Losses. Attachment 1 has been
revised through a separate interagency notice
published elsewhere in this issue of the Federal
Register.
8 See FIL–63–2001 (FDIC); SR 01–17 (FRB); and
Bulletin 2001–37 (OCC).
9 See Interpretive Ruling Policy Statement (IRPS)
02–3.
10 The regulatory reporting requirement to apply
the collateral-dependent practical expedient in ASC
326–20–35–5 for collateral-dependent loans,
regardless of whether foreclosure is probable, was
retained by the agencies to achieve safety and
soundness objectives.
11 See https://www.fasb.org/jsp/FASB/Document_
C/DocumentPage&cid=1176171932989.
12 See https://www.fasb.org/jsp/FASB/Document_
C/DocumentPage&cid=1176172970152.
13 Some commenters noted that different
messages may be provided by various parties
interested in FASB ASC Topic 326. The agencies
meet regularly with many of these parties,
including external auditors, the FASB, the SEC, the
Public Company Accounting Oversight Board
(PCAOB), and industry trade associations, to
discuss FASB ASC Topic 326 to promote
consistency in messaging regarding implementation
of the accounting standard.
estimation processes, including the
internal controls over these processes;
the maintenance of appropriate ACLs;
the responsibilities of boards of
directors and management; and
examiner reviews of ACLs.
The comment period for the proposed
Policy Statement ended on December
16, 2019. The agencies received 23
comment letters from trade associations,
financial institutions, and individuals.
Several commenters raised issues
outside of the scope of the proposed
Policy Statement that were not
addressed in the final Policy
Statement.5 General comments on the
notice and agency responses are
summarized in Section II. Specific
comments on the proposed Policy
Statement and changes to the final
Policy Statement the agencies made in
response to these comments are
described in Section III. The Paperwork
Reduction Act is addressed in Section
IV. Section V presents the final Policy
Statement.
The final Policy Statement becomes
applicable to an institution upon that
institution’s adoption of FASB ASC
Topic 326.6 The following policy
statements are no longer effective for an
institution upon its adoption of FASB
ASC Topic 326: The December 2006
Interagency Policy Statement on the
Allowance for Loan and Lease Losses; 7
the July 2001 Policy Statement on
Allowance for Loan and Lease Losses
Methodologies and Documentation for
Banks and Savings Institutions; 8 and
the NCUA’s May 2002 Interpretive
Ruling and Policy Statement 02–3,
Allowance for Loan and Lease Losses
Methodologies and Documentation for
Federally Insured Credit Unions 9
(collectively, ALLL Policy Statements).
The agencies will rescind the ALLL
Policy Statements once FASB ASC
Topic 326 is effective for all institutions.
II. General Comments on the Proposed
Policy Statement
Many commenters expressed support
for the proposed Policy Statement.
These commenters noted that the
proposal is generally consistent with
FASB ASC Topic 326 and retains the
flexibility and judgmental nature of
GAAP. Commenters also stated that
supervisory practices and principles
were clearly communicated. Some
commenters appreciated the agencies’
statement that examiners generally
should accept an institution’s ACL
estimates and not seek adjustments to
the ACLs when management has
provided adequate support for the loss
estimation process employed, and the
ACL balances and the assumptions used
in the ACL estimates are in accordance
with GAAP and regulatory reporting
requirements.
A number of commenters requested
that the agencies include information in
the final Policy Statement to provide
additional guidance around technical
aspects of FASB ASC Topic 326 and
reduce the amount of management
judgment required to implement the
accounting standard. For example,
commenters requested additional clarity
on segmentation, data availability,
estimating expected losses for credit
cards, and accounting for loans
transferred between held-for-sale and
held-for investment classifications.
Requests were also made for the
agencies to require certain measurement
approaches or methods in places where
FASB ASC Topic 326 provides
flexibility, such as requiring a single
expected credit loss estimation method,
defining the reasonable and supportable
forecast period, providing an economic
forecast or a simple model that can be
used by all institutions, and aligning the
agencies’ long-standing practice for
collateral-dependent loans with the
collateral-dependent practical expedient
in FASB ASC Topic 326.10
The agencies considered these
requests and decided not to limit
flexibility in implementing FASB ASC
Topic 326 by narrowing options or
defining terms that are not defined in
GAAP. The final Policy Statement does
not endorse a specific loss estimation
method or provide more detail about
specific implementation choices,
including providing templates for
certain methods. FASB ASC Topic 326
allows management to exercise
judgment to best reflect its estimate of
expected credit losses given the
institution’s own unique set of facts and
circumstances. Specific assumptions
and determinations appropriate for one
institution may not be appropriate for
all other institutions. The final Policy
Statement recognizes that different
approaches and assumptions may be
used by management in estimating
expected credit losses. Prescribing only
one method for use in estimating
expected credit losses or narrowly
defining terms or concepts introduced
in ASC Topic 326 in the final Policy
Statement could narrow the flexibility
and scalability provided in FASB ASC
Topic 326.
While outside of the scope of the final
Policy Statement, institutions interested
in more detailed implementation
examples may continue to refer to the
examples included in FASB ASC Topic
326 as well as FASB Staff Q&A—Topic
326, No. 1, ‘‘Whether the Weighted-
Average Remaining Maturity Method is
an Acceptable Method to Estimate
Credit Losses’’ 11 and FASB Staff Q&A—
Topic 326, No. 2, ‘‘Developing an
Estimate of Expected Credit Losses on
Financial Assets.’’ 12 Institutions may
also refer to training events such as the
interagency webinars the agencies
conducted during 2018 and 2019. These
webinars reviewed acceptable loss
estimation methods including the open
pool loss rate method, vintage method
for closed pools, weighted average
remaining maturity (WARM) method,
and the probability of default (PD)/loss
given default (LGD) method. The
agencies encourage institution
management to discuss FASB ASC
Topic 326 and any related questions or
concerns with its board of directors,
audit committee, industry peers,
external auditors, and primary federal
regulator.13
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5 For example, the agencies received comments
requesting exemptions from applying FASB ASC
Topic 326. Other commenters requested
adjustments to regulatory capital requirements
upon adoption of FASB ASC Topic 326.
6 As noted in ASU 2019–10, FASB ASC Topic 326
is effective for fiscal years beginning after December
15, 2019, including interim periods within those
fiscal years, for public business entities that meet
the definition of a Securities Exchange Commission
(SEC) filer, excluding entities eligible to be small
reporting companies as defined by the SEC. FASB
ASC Topic 326 is effective for all other entities for
fiscal years beginning after December 15, 2022,
including interim periods within those fiscal years.
For all entities, early application of FASB ASC
Topic 326 is permitted as set forth in ASU 2016–
13.
7 See Financial Institution Letter (FIL) 105–2006
(FDIC); Supervision and Regulation (SR) Letter 06–
17 (FRB); Accounting Bulletin 06–01 (NCUA); and
Bulletin 2006–47 (OCC). The final Policy Statement
does not affect Attachment 1 to the December 2006
Interagency Policy Statement on the Allowance for
Loan and Lease Losses. Attachment 1 has been
revised through a separate interagency notice
published elsewhere in this issue of the Federal
Register.
8 See FIL–63–2001 (FDIC); SR 01–17 (FRB); and
Bulletin 2001–37 (OCC).
9 See Interpretive Ruling Policy Statement (IRPS)
02–3.
10 The regulatory reporting requirement to apply
the collateral-dependent practical expedient in ASC
326–20–35–5 for collateral-dependent loans,
regardless of whether foreclosure is probable, was
retained by the agencies to achieve safety and
soundness objectives.
11 See https://www.fasb.org/jsp/FASB/Document_
C/DocumentPage&cid=1176171932989.
12 See https://www.fasb.org/jsp/FASB/Document_
C/DocumentPage&cid=1176172970152.
13 Some commenters noted that different
messages may be provided by various parties
interested in FASB ASC Topic 326. The agencies
meet regularly with many of these parties,
including external auditors, the FASB, the SEC, the
Public Company Accounting Oversight Board
(PCAOB), and industry trade associations, to
discuss FASB ASC Topic 326 to promote
consistency in messaging regarding implementation
of the accounting standard.
estimation processes, including the
internal controls over these processes;
the maintenance of appropriate ACLs;
the responsibilities of boards of
directors and management; and
examiner reviews of ACLs.
The comment period for the proposed
Policy Statement ended on December
16, 2019. The agencies received 23
comment letters from trade associations,
financial institutions, and individuals.
Several commenters raised issues
outside of the scope of the proposed
Policy Statement that were not
addressed in the final Policy
Statement.5 General comments on the
notice and agency responses are
summarized in Section II. Specific
comments on the proposed Policy
Statement and changes to the final
Policy Statement the agencies made in
response to these comments are
described in Section III. The Paperwork
Reduction Act is addressed in Section
IV. Section V presents the final Policy
Statement.
The final Policy Statement becomes
applicable to an institution upon that
institution’s adoption of FASB ASC
Topic 326.6 The following policy
statements are no longer effective for an
institution upon its adoption of FASB
ASC Topic 326: The December 2006
Interagency Policy Statement on the
Allowance for Loan and Lease Losses; 7
the July 2001 Policy Statement on
Allowance for Loan and Lease Losses
Methodologies and Documentation for
Banks and Savings Institutions; 8 and
the NCUA’s May 2002 Interpretive
Ruling and Policy Statement 02–3,
Allowance for Loan and Lease Losses
Methodologies and Documentation for
Federally Insured Credit Unions 9
(collectively, ALLL Policy Statements).
The agencies will rescind the ALLL
Policy Statements once FASB ASC
Topic 326 is effective for all institutions.
II. General Comments on the Proposed
Policy Statement
Many commenters expressed support
for the proposed Policy Statement.
These commenters noted that the
proposal is generally consistent with
FASB ASC Topic 326 and retains the
flexibility and judgmental nature of
GAAP. Commenters also stated that
supervisory practices and principles
were clearly communicated. Some
commenters appreciated the agencies’
statement that examiners generally
should accept an institution’s ACL
estimates and not seek adjustments to
the ACLs when management has
provided adequate support for the loss
estimation process employed, and the
ACL balances and the assumptions used
in the ACL estimates are in accordance
with GAAP and regulatory reporting
requirements.
A number of commenters requested
that the agencies include information in
the final Policy Statement to provide
additional guidance around technical
aspects of FASB ASC Topic 326 and
reduce the amount of management
judgment required to implement the
accounting standard. For example,
commenters requested additional clarity
on segmentation, data availability,
estimating expected losses for credit
cards, and accounting for loans
transferred between held-for-sale and
held-for investment classifications.
Requests were also made for the
agencies to require certain measurement
approaches or methods in places where
FASB ASC Topic 326 provides
flexibility, such as requiring a single
expected credit loss estimation method,
defining the reasonable and supportable
forecast period, providing an economic
forecast or a simple model that can be
used by all institutions, and aligning the
agencies’ long-standing practice for
collateral-dependent loans with the
collateral-dependent practical expedient
in FASB ASC Topic 326.10
The agencies considered these
requests and decided not to limit
flexibility in implementing FASB ASC
Topic 326 by narrowing options or
defining terms that are not defined in
GAAP. The final Policy Statement does
not endorse a specific loss estimation
method or provide more detail about
specific implementation choices,
including providing templates for
certain methods. FASB ASC Topic 326
allows management to exercise
judgment to best reflect its estimate of
expected credit losses given the
institution’s own unique set of facts and
circumstances. Specific assumptions
and determinations appropriate for one
institution may not be appropriate for
all other institutions. The final Policy
Statement recognizes that different
approaches and assumptions may be
used by management in estimating
expected credit losses. Prescribing only
one method for use in estimating
expected credit losses or narrowly
defining terms or concepts introduced
in ASC Topic 326 in the final Policy
Statement could narrow the flexibility
and scalability provided in FASB ASC
Topic 326.
While outside of the scope of the final
Policy Statement, institutions interested
in more detailed implementation
examples may continue to refer to the
examples included in FASB ASC Topic
326 as well as FASB Staff Q&A—Topic
326, No. 1, ‘‘Whether the Weighted-
Average Remaining Maturity Method is
an Acceptable Method to Estimate
Credit Losses’’ 11 and FASB Staff Q&A—
Topic 326, No. 2, ‘‘Developing an
Estimate of Expected Credit Losses on
Financial Assets.’’ 12 Institutions may
also refer to training events such as the
interagency webinars the agencies
conducted during 2018 and 2019. These
webinars reviewed acceptable loss
estimation methods including the open
pool loss rate method, vintage method
for closed pools, weighted average
remaining maturity (WARM) method,
and the probability of default (PD)/loss
given default (LGD) method. The
agencies encourage institution
management to discuss FASB ASC
Topic 326 and any related questions or
concerns with its board of directors,
audit committee, industry peers,
external auditors, and primary federal
regulator.13
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