FFIEC backs FASB proposal for credit impairment changes, recommends modifications

FFIECThe Federal Financial Institutions Examination Council, which is comprised of bank regulators and the National Credit Union Administration, recently expressed support for proposed credit impairment recognition changes but called for proposal modifications for “small and less complex entities.”

The Financial Accounting Standards Board put forth a proposal last December that would require a financial institution to use an “expected credit loss” measurement, replacing the current incurred loss model.

In its letter to the FASB, the FFIEC said the changes would address “too-little, too-late” criticism of loss allowances after the crisis by replacing the “probable incurred loss threshold” with loss measurement expected at the balance sheet date.

The FFIEC said, however, that the proposed principles should be applicable to all entities in a manner that is “appropriate and practical for their circumstances.”

“Smaller entities and those with less complex financial asset portfolios may be able to achieve the objectives of the [current and expected loss] model through estimation practices that are less burdensome and costly than those that may be used by larger and more complex entities. To accommodate the resource constraints faced by smaller institutions, the proposed standard could be modified to include additional practical expedients that satisfy the intended measurement objective, a transition period that considers the time and effort necessary to implement the new model and condensed disclosure requirements.”

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