Agencies urge institutions to plan for new CECL standard

June 20, 2016 -- Initial supervisory views regarding the implementation of the “current expected credit loss” (CECL) accounting standard -- which was finalized and released by the Financial Accounting Standards Board (FASB) last week – have been issued by the joint federal financial institution regulatory agencies.

In a statement released Friday, NCUA, the FDIC, OCC and the Fed noted that the new standard (known officially as Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments) applies to all banks, savings associations, credit unions, and financial institution holding companies, regardless of asset size. The standard, the release stated, allows for various expected credit loss estimation methods and is scalable.

“The agencies encourage financial institutions to begin planning implementation of the new standard and ensure that appropriate institution staff works closely with their senior executives and boards of directors during this transition,” the release stated. “Institutions are encouraged to plan for the potential impact of the new standard on capital in advance of the new standard’s effective date.”

The new standard is effective in 2020 for financial institutions required to file financial statements with the Securities and Exchange Commission or the appropriate federal banking agency under the federal securities laws. The new accounting standard takes effect in 2021 for all other financial institutions. Early adoption is permitted, the joint release stated, but no earlier than in 2019.

Joint Statement on the New Accounting Standard on Financial Instruments - Credit Losses