When you think you know everything you need to know about CECL, along comes something new. Who would have thought that we could leave it to the federal financial institution regulatory agencies (agencies) to lead the way? But in fact, they’re a pretty good resource to turn to.
On April 3, 2019 the agencies issued updated Frequently Asked Questions on the New Accounting Standard on Financial Instruments – Credit Losses to assist institutions and examiners. The updated Frequently Asked Questions (FAQs) combine new questions and answers to those issued in 2017 and 2016, replacing the FAQs in FIL-41-2017. In all there were 4 updates and 9 new FAQ’s. FAQ’s number 4, 18, 34 and 35 have been updated and numbers 38 through 46 were additions. Some of the key points in the update include:
- collateral-dependent loans; reasonable and supportable forecasts; internal control considerations related to data; and the continued relevance of concepts, processes, and practices in existing supervisory guidance on the allowance for loan and lease losses.
- FASB's recent amendment to the effective date of the new accounting standard for nonpublic business entities.
- continued emphasis on the scalability of CECL to institutions of all sizes, and the expectation that community institutions are not expected to need to adopt complex modeling techniques to implement the new accounting standard.
- institutions use of allowance estimation methods scaled to their size and complexity, under GAAP will be similar to the credit loss estimation methods used under CECL.
- the agencies expect institutions to make good faith efforts to apply the new credit losses standard in a sound and reasonable manner.
- We encourage you to stay abreast of CECL news and updates. Take some time and Read the FAQs, it contains a wealth of good CECL information. This link will take you to the 43 page FAQ.
On a related note, in addition to these updated FAQ’s, the agencies will host an inter-agency webinar focusing on the application of the Weighted-Average Remaining Maturity (WARM) method for estimating allowances for credit losses in accordance with Accounting Standards Update No. 2016 13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Again, more helpful information from your regulators. Doesn’t it give you that WARM fuzzy feeling knowing your regulators are actually helping.
This webinar will be held in conjunction with the Financial Accounting Standards Board (FASB), the U.S. Securities and Exchange Commission (SEC), and the Conference of State Bank Supervisors (CSBS). Agencies working together and on the same page, what a novel concept.
- On Thursday, April 11, 2019, from 2:00 p.m. to 3:30 p.m., Eastern Time, the federal financial institution regulatory agencies, in conjunction with the FASB, the SEC, and the CSBS, will jointly host an "Ask the Regulators: CECL Webinar: Weighted-Average Remaining Maturity Method."
- In January 2019, the FASB confirmed that the WARM method is one of many acceptable methods that could be used to estimate allowances for less complex financial asset pools under CECL. The April 11 webinar primarily will address the use of the WARM method.
- Bankers are encouraged to invite representatives from the functional areas within their institutions who are involved in the implementation of the new credit losses accounting standard and from their external audit firm to participate in the webinar. We encourage you to attend.
- Participants may join the webinar at https://www.webcaster4.com/Webcast/Page/583/29509. Advance registration is not required; however, participants are encouraged to do so at this link.
For those of you waiting on the sidelines, not sure of how CECL will turn out, FASB drew another line in the sand this week. On April 3, the Financial Accounting Standards Board declined to make changes to its current expected credit loss model, as proposed by a group of regional banks, speeding CECL on its path to being implemented for Securities and Exchange Commission registrants as scheduled in 2020. However, SVP Mike Gullette of the ABA warned “While FASB may not have accepted this specific proposal, that does not mean there is a consensus to move forward with CECL in its current form.” Although the ABA and others continue to call for a delay until a quantitative impact study can be conducted to assess both financial reporting and regulatory capital concerns raised by CECL, FASB holds all the cards.
At FIMAC Solutions, our money is on FASB as we believe FASB will hold steady and CECL will remain fundamentally unchanged from its current format. With that in mind, we’re ready now but have the capability to adjust to any changes that may occur prior to implementation. We have a low cost CECL software solution for both banks and credit unions that is simple to use, saves staff time and produces accurate results. To learn more or schedule a demonstration just give us a call.
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