Highlights:
- An institution must maintain an ALLL at a level that is appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired, as well as estimated credit losses inherent in the remainder of the loan and lease portfolio. An assessment of the appropriateness of the ALLL is critical to an institution's safety and soundness.
- In light of ALLL-related developments since the policy statement was first adopted in 1993, the agencies have revised the policy to ensure consistency with generally accepted accounting principles (GAAP) and more recent supervisory guidance. The agencies also are issuing 16 FAQs to assist institutions in complying with GAAP and ALLL supervisory guidance.
- The revised policy statement updates the previous guidance that describes the responsibilities of the boards of directors, management, and bank examiners regarding the ALLL; factors to be considered in the estimation of the ALLL; and the objectives and elements of an effective loan review system, including a sound credit grading system.
- Although the revised policy statement reiterates key concepts and requirements in GAAP and ALLL supervisory guidance, the agencies recognize that institutions may not have sufficient time to complete any enhancements needed to bring their ALLL processes and documentation into full compliance with the revised guidance for year-end 2006 reporting purposes. Nevertheless, these enhancements should be completed in the near term.
Distribution:
FDIC-Supervised Banks (Commercial and Savings)
Suggested Routing:
Chief Executive Officer
Chief Financial Officer
Chief Lending Officer
Board of Directors
Related Topic:
Policy Statement on ALLL Methodologies and
Documentation for Banks and Savings Institutions
Attachments:
Interagency Policy Statement on the Allowance for Loan and Lease Losses - PDF 138k (PDF Help)
Questions and Answers on Accounting for Loan and Lease Losses - PDF 65k (PDF Help)
Contact:
FDIC Regional Accountant or Christine Bouvier,
Senior Policy Analyst, Division of Supervision and
Consumer Protection, at cbouvier@fdic.gov or
202-898-7289
Printable Format:
FIL-105-2006 - PDF 36k (PDF Help)
Note:
FDIC financial institution letters (FILs) may be
accessed from the FDIC's Web site at
www.fdic.gov/news/news/financial/2006/index.html.
To receive FILs electronically, please visit
http://www.fdic.gov/about/subscriptions/fil.html.
Paper copies of FDIC financial institution letters
may be obtained through the FDIC's Public
Information Center (1-877-275-3342 or 703-562-
2200).
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