FASB’s plan to boost reserves supported by OCC’s Curry
Comptroller of the Currency Thomas Curry has strongly endorsed an accounting proposal that may force banks to increase reserves, calling industry concerns that the plan will boost allowances by as much as 300 percent “exaggerated.”
In a speech to a banking conference hosted by the American Institute of Certified Public Accountants, Curry said the new FASB proposal, which would require banks to hold allowances on the basis of “expected” losses, is “not only sound but preferable to the existing ‘incurred loss’ regime.”
“We have concluded that the FASB proposal is consistent with the goal of supporting and reporting on the balance-sheet integrity and the ability of financial institutions to fully consider all information, past, present, and future, and to do it early, when risks are building, in determining what amount of allowance is the right amount,” Curry said, according to a copy of his prepared remarks.
The Financial Accounting Standards Board in December proposed the ‘Current Expected Credit Model’ (CECL), which would force banks to set aside money in reserves based on predictions of the market and the life of the loan. In the current model, banks rely on an actual loss event before treating a loan as impaired.
Curry said that while some industry groups have suggested the new standard will force increases of 200 to 300 percent in allowances, the OCC’s own analysis suggests the allowance, on average, will increase by 30 percent to 50 percent.
For more information on how financial institutions can prepare for the upcoming changes, download the whitepaper, titled: “FASB’s CECL Model: How to Prepare Now”.
To read Curry’s speech at the AICPA’s banking conference, click here.