Interagency Policy Statement on Allowances for Credit Losses (Revised April 2023)

Summary:

The federal financial institution regulatory agencies have jointly issued the attached Interagency Policy Statement on Allowances for Credit Losses (Revised April 2023) (revised statement). The agencies issued this revised statement in response to changes in the accounting guidance for troubled debt restructurings (TDRs) by creditors under U.S. generally accepted accounting principles (U.S. GAAP).

Statement of Applicability: The contents of, and material referenced in, this FIL apply to all FDIC-insured financial institutions.

Highlights:

• In 2020, the agencies issued an interagency policy statement (original statement) in response to the Financial Accounting Standards Board’s (FASB) June 2016, issuance of Accounting Standards Update (ASU) No. 2016-13, which introduced the current expected credit losses (CECL) methodology and replaced the former incurred loss methodology in U.S. GAAP. The FASB codified these changes, including subsequent amendments, in Accounting Standards Codification Topic 326, Financial Instruments – Credit Losses (FASB ASC Topic 326).
• In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (ASU 2022-02), which amended FASB ASC Topic 326. ASU 2022-02 eliminates the recognition and measurement accounting guidance for TDRs, while enhancing financial statement disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.
• The supplemental instructions to the Consolidated Reports of Condition and Income (i.e., Call Report) previously communicated regulatory reporting guidance related to ASU 2022-02.
• The original statement has been revised to remove references to TDRs and to correct a citation to a regulation in a footnote. All other information within the original statement is unchanged.
• The principles described in the revised statement are consistent with U.S. GAAP, regulatory reporting requirements, safe-and-sound banking practices, and the agencies’ codified guidelines establishing standards for safety and soundness.
• The revised statement will take effect at the time of each institution’s adoption of FASB ASC Topic 326.