Banking Agencies Provide Guidance on New Accounting Standard for Estimating Allowances for Credit Losses

The Board of Governors of the Federal Reserve System ("FRB"), FDIC, National Credit Union Administration ("NCUA") and the Office of the Comptroller of the Currency ("OCC") (collectively, the "agencies") provided information about a new accounting standard which introduces the expected credit losses methodology ("CECL") for estimating allowances for credit losses. The new accounting standard, issued by the Financial Accounting Standards Board ("FASB"), allows a financial institution to leverage its current internal credit risk systems as a framework for estimating expected credit losses.

The agencies released supervisory reviews regarding the implementation of the new accounting standard, which applies to all banks, savings associations, credit unions and financial institution holding companies, regardless of asset size.

The agencies established the following effective dates for the new standards (set by FASB), which depend on an institution's respective characteristics:

• Public business entities ("PBE") that are SEC filers: Fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

• Other PBEs (non-SEC filers): Fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

• Non-PBEs (private companies): Fiscal years beginning after December 15, 2020, including interim periods beginning after December 15, 2021.

Early application of the new standard is permitted for fiscal years beginning after December 15, 2018 – including interim periods within those fiscal years – for all institutions.