During the National Credit Union Administration (NCUA) Board’s February 2020 meeting, the NCUA Board approved the final Interagency Policy Statement on Allowances for Credit Losses (Policy Statement). NCUA, together with the three other federal banking agencies, issued the Policy Statement in response to changes to U.S. generally accepted accounting principles (GAAP) due to the adoption of the current expected credit losses (CECL) methodology.
While NAFCU has been successful in lobbying the Financial Accounting Standards Board (FASB) to delay CECL (credit unions do not need to comply with CECL until January 2023) and continues to ask for reconsideration of the standard, credit unions should not presume that CECL is going away. Regardless of how far along a credit union may be in terms of implementing the new standard, the Policy Statement is an essential document that will help credit unions understand the NCUA’s expectations related to CECL and allowances for credit losses. Because of the resources that are required to implement CECL (e.g., more data, additional staff, etc.) and the time it will take to implement CECL, a frequently asked questions document prepared by NAFCU has noted that many sources have advised credit unions to have CECL in place at least a year before the effective date to permit running CECL and the incurred loss model at the same time. The rationale for this proposed dual tracking includes being able to refine CECL processes before they are mandatory. Moreover, NCUA has included CECL on its list of 2020 supervisory priorities, and examiners will discuss CECL implementation plans with credit union management during examinations.
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