Interagency Policy Statement on Allowances for Credit Losses (Revised April 2023)

Following the initial publication of a revised Interagency Policy Statement on Allowances for Credit Losses by the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (FED), the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA) on the FED’s website on April 21, 2023, the statement was now published in the Federal Register. This Policy Statement is intended to promote consistency in the interpretation and application of the Financial Accounting Standards Board’s (FASB) credit losses accounting standard, which introduced the current expected credit losses (CECL) methodology. As previously described, the policy statement contains
– an explanation of the measurement of allowances for credit losses under the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” as well as the updates issued since June 2016; and
– a description of the regulatory expectations for
– designing, documenting, and validating CECL methodologies,
– maintaining appropriate allowances for credit losses under the new accounting standard,
– the boards of directors and management regarding this issue, and
– examiner reviews of allowances for credit losses.
The latest revised version particularly reflects the elimination of the recognition and measurement „of troubled debt restructurings (TDR) by creditors“ in the U.S. generally accepted accounting principles (US GAAP) and contains a correction of a citation.
To recall, in 2022, FASB replaced the accounting term TDR (restructured loans or troubled debt restructurings), a figure used to determine expected credit losses (ECL) of financial institutions, with a new measure, namely borrowers experiencing financial difficulty (BED).