The Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Office of Thrift Supervision, and National Credit Union Administration (the agencies) have issued the attached interagency Update on Accounting for Loan and Lease Losses (statement). This statement describes recent developments in accounting for the allowance for loan and lease losses (ALLL). In addition, the statement identifies current sources of generally accepted accounting principles (GAAP) and supervisory guidance, which should be used by financial organizations in determining the ALLL and associated provisions for loan losses.1
Last month, the Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants (AICPA) decided to limit the scope of its project to provide ALLL guidance. Going forward, the project will focus on improving ALLL disclosures. Consistent with these actions by AcSEC, banking organizations, as well as examiners and other supervisory staff, are reminded that financial institutions should continue to follow existing GAAP and supervisory guidance when determining the ALLL.
Reserve Banks are asked to distribute this SR letter and the attached statement to senior management of state member banks, bank holding companies, and foreign banking organizations supervised by the Federal Reserve, as well as to supervisory and examination staff. Questions pertaining to this letter should be directed to Charles Holm, Deputy Associate Director, at (202) 452-3502 or Linda Ditchkus, Project Manager, at (202) 452-3506, in the Accounting Policy & Disclosure section.