Banking regulators have been particularly active relative to CECL since early 2018. Some of the communication and guidance comes from individual regulatory bodies like the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), but most have come via the joint regulatory body commonly known as the FFIEC.
While the FFIEC has yet to issue an Interagency Policy Statement (Policy Statement) on CECL, they have formally communicated expectations and guidance via a Joint Statement on the New Accounting Standard on Financial Instruments – Credit Losses on June 17, 2016, and Frequently Asked Questions on the New Accounting Standard on Financial Instruments – Credit Losses, most recently updated in April 2019.
The FAQ provides clear and specific answers to 46 commonly asked questions and serves as the primary formal document issued by the FFIEC to date. Banking regulators have indicated the FAQ will continue to be updated as needed and that an Interagency Policy Statement is forthcoming. In the meantime and until CECL adoption, the regulatory expectation is that financial institutions will continue to adhere to the Policy Statements related to the Allowance for Loan and Lease Losses (ALLL) issued in 2001 and 2006, respectively.
The FFIEC has also communicated with stakeholders via a series of webinars. Each webinar has included representation for each of the joint regulatory bodies, as well as the FASB and SEC.
The first webinar of 2018, on February 27, was entitled Practical Methods Smaller, Less Complex Community Banks Can Use as a Starting Point for CECL. Loss rate methods covered included Snapshot/Open Pool, Remaining Life, and Vintage, and the FFIEC also provided practical insights on the importance of data, and controls.
The July 2018 FFIEC webinar, entitled Current Expected Credit Losses (CECL): Questions and Answers for Community Institution, discussed defining “small and less complex,” supervisory expectations, third-party vendors, data, reasonable and supportable, segmentation, and a variety of other relevant items.
The most recent webinar recorded in April 2019 centered around the Weighted Average Remaining Maturity Method (WARM) for determining credit losses under CECL. While the panel stopped short of endorsing the WARM method for smaller, less complex financial institutions, they made it clear it is a viable option. As noted previously, the FASB issued a Q&A on WARM in January of 2019, concluding that it is an acceptable method to employ to comply with the Standard. Interestingly, the American Bankers Association (ABA) issued a white paper regarding “implementation concerns” associated with the WARM method.
Due to the volume, nature, and extent of question received during the WARM webinar, the FFIEC intends to develop a follow up WARM webinar in Q&A format.