Removing Barriers Blog

CUNA Weighs-in on Proposed Interagency Guidance related to CECL
Posted December 16, 2019 by CUNA Advocacy

The NCUA, OCC, FRB, and FDIC have proposed two documents intended to update existing regulatory accounting guidance in light of FASB’s credit losses standard, which includes the current expected credit loss (CECL) methodology. Today, we filed comment letters on the proposed interagency documents intended to update existing regulatory accounting guidance.

Proposed Interagency Guidance on Credit Risk Review Systems: This proposed guidance describes the elements of a credit risk review system that should be reviewed and approved by an institution’s board of directors (or appropriate board committee) at least annually. In general, we believe the proposed guidance describes a broad set of practices that an institution—including most credit unions—can use to form a credit risk review system that is consistent with safe-and-sound lending practices. Further, we believe the proposed guidance generally reflects current sound practices for an institution’s credit risk review activities.

However, while we appreciate the agencies’ efforts in trying to draft the proposed guidance to allow it to apply to institutions of varying size and complexity, we are concerned there will be instances where its application to certain credit unions is simply not feasible or appropriate. Therefore, we urge the NCUA to recognize the nature of the proposed guidance as simply guidance that credit unions can look to when establishing and maintaining credit risk review systems. We believe it would be inappropriate to examine credit unions for strict adherence to the exact guidance as outlined in the proposal.

Proposed Interagency Policy Statement on Allowances for Credit Losses: This proposed statement addresses: supervisory expectations for documenting and validating expected credit loss estimation processes; responsibilities of boards of directors and management; and examiner reviews of allowances for credit losses. In general, the proposed statement appears reasonable and seems to comport with CECL.

In addition to other suggestions included in our comment letter, we ask the NCUA and the other agencies to ensure the statement and any supplemental material remain GAAP and GAAP alone—as opposed to RAP (regulatory accounting principles). Further, we reiterate our call for NCUA to continue its outreach to credit unions on CECL as well as increase its focus on compliance resources specific to credit unions.