Credit losses and credit risk review systems
Happy Monday, compliance friends!
As explained in a previous blog, the National Credit Union Administration (NCUA) signed on to an interagency policy statement on allowances for credit losses. The statement intends to promote consistency in the interpretation and application of the Financial Accounting Standards Board’s (FASB’s) accounting standard in ASC Topic 326 which introduces the current expected credit losses (CECL) methodology. The interagency policy statement will be effective at the time of each institution’s adoption of the credit losses accounting standard. NAFCU and NCUA continue to advocate for credit unions to be exempt from CECL
In case you missed it, the blog does a good job of setting forth the relevance and importance of the policy statement. It explains, “The Policy Statement cautions credit unions to consider whether adjustments to historical loss information need to be made to the extent that current conditions and reasonable and supportable forecasts may differ from the historical loss timeline.”
In addition to the policy statement on allowances, on May 8, NCUA signed on to a statement on credit risk review systems. This statement presents principles for establishing a system of independent, ongoing credit risk review in accordance with safety and soundness standards. The statement emphasizes that credit risk review is a significant risk management function separate from the determination of the appropriate reserve for credit losses.
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