SR 20-12:
Interagency Policy Statement on Allowances for Credit Losses
OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551
DIVISION OF
SUPERVISION AND REGULATION
May 8, 2020
TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE BANK
Interagency Policy Statement on Allowances for Credit Losses
Applicability: This guidance is relevant for Federal Reserve supervised financial institutions,1 including those with $10 billion or less in consolidated assets, that file regulatory reports prepared in accordance with generally accepted accounting principles (GAAP).2
The Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency (the agencies) are issuing the attached interagency policy statement in response to changes in the accounting for credit losses under U.S. generally accepted accounting principles (U.S. GAAP), as promulgated by the Financial Accounting Standards Board (FASB).3
The interagency policy statement describes the measurement of expected credit losses under the current expected credit losses (CECL) methodology and the accounting for impairment on available-for-sale debt securities in accordance with FASB ASC Topic 326. The statement also includes and updates concepts and practices detailed in existing policy statements on the allowance for loan and lease losses that remain relevant under FASB ASC Topic 326.
This interagency policy statement is relevant for an institution when the institution adopts FASB ASC Topic 326.4 For institutions that have adopted the accounting standard, this interagency policy statement replaces the guidance presented in two policy statements on the allowance for loan and lease losses:
- SR letter 06-17, "Interagency Policy Statement on the Allowance for Loan and Lease Losses (ALLL)"5
- SR letter 01-17, "Final Interagency Policy Statement on Allowance for Loan and Lease Losses (ALLL) Methodologies and Documentation for Banks and Savings Institutions"
An institution should continue to refer to SR letter 06-17 and SR letter 01-17 for relevant guidance until its adoption of FASB ASC Topic 326.
Reserve Banks are asked to distribute this letter to the supervised institutions in their districts, as well as to appropriate supervisory and examination staff. Questions regarding this letter should be directed to Lara Lylozian, Deputy Associate Director and Chief Accountant-Supervision, at (202) 475-6656, or Kevin Chiu, Senior Accounting Policy Analyst, at (202) 912-4608. In addition, questions may be sent via the Board’s public website.6
signed by
Michael S. Gibson
Director
Division of
Supervision and Regulation
- SR letter 06-17, "Interagency Policy Statement on the Allowance for Loan and Lease Losses (ALLL)"
- SR letter 01-17, "Final Interagency Policy Statement on Allowance for Loan and Lease Losses (ALLL) Methodologies and Documentation for Banks and Savings Institutions"
- Interagency Policy Statement on Allowances for Credit Losses
- Federal Register notice (preamble and interagency policy statement)
- SR letter 20-13, "Interagency Guidance on Credit Risk Review Systems"
- SR letter 13-19 / CA letter 13-21, "Guidance on Managing Outsourcing Risk"
- SR letter 11-7, "Guidance on Model Risk Management"
- SR letter 95-42, "Allowance for Loan and Lease Losses for U.S. Branches and Agencies of Foreign Banking Organizations"
- SR letter 95-4, "Allowance for Loan and Lease Losses for U.S. Branches and Agencies of Foreign Banking Organizations"
Notes:
- This includes state member banks, bank holding companies, savings and loan holding companies, Edge Act and agreement corporations, and U.S. branches and agencies of foreign banking organizations (FBOs). Return to text.
- U.S. branches and agencies of FBOs may choose to, but are not required to, maintain an allowance for loan losses on an office level. These institutions should refer to the instructions for the FFIEC 002, "Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks," as well as SR letter 95-4, "Allowance for Loan and Lease Losses for U.S. Branches and Agencies of Foreign Banking Organizations," and SR letter 95-42, "Allowance for Loan and Lease Losses for U.S. Branches and Agencies of Foreign Banking Organizations." Return to text.
- Refer to Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent amendments since June 2016. These updates are codified in Accounting Standards Codification (ASC) Topic 326, Financial Instruments – Credit Losses (FASB ASC Topic 326). See Board press release, May 8, 2020, at: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200508a.htm Return to text.
- In accordance with ASU No. 2019-10, FASB ASC Topic 326 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, for public business entities that meet the definition of a Securities Exchange Commission (SEC) filer, excluding entities eligible to be small reporting companies as defined by the SEC. FASB ASC Topic 326 is effective for all other entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For all entities, early application of FASB ASC Topic 326 is permitted as set forth in ASU 2016-13. Additionally, on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. Section 4014 of the CARES Act provides optional temporary relief from implementing FASB ASC Topic 326. Institutions that elect to apply Section 4014 of the CARES Act may delay the implementation of FASB ASC Topic 326 until the earlier of: (1) the date on which the national emergency concerning the novel coronavirus disease (COVID-19) outbreak declared by the President on March 13, 2020 ends, or (2), December 31, 2020. Return to text.
- The 2020 interagency policy statement does not include the "Loan Review Systems" guidance, which is contained in Attachment 1 to the Interagency Policy Statement on the Allowance for Loan and Lease Losses (See SR letter 06‑17). The agencies revised the "Loan Review Systems" guidance and issued it as stand-alone guidance. Refer to SR letter 20-13, "Interagency Guidance on Credit Risk Review Systems." Return to text.
- See http://www.federalreserve.gov/apps/contactus/feedback.aspx. Return to text.