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Oct. 5 — Federal bank regulators don’t have plans to dictate—nor do they expect to see—banks report a set percentage increase in loan loss allowances under new accounting rules, a top accountant at the Federal Reserve Board of Governors said.
Many bankers are looking for such a benchmark and have been asking questions about those possible obligations, Lara Lylozian, an assistant chief accountant at the Fed, said in an Oct. 5 webinar. “There is no benchmark and there are no plans by the agencies to publish a benchmark for how much an allowance should increase upon adoption,” Lylozian said.
“The federal banking agencies also don’t have in mind specific expectations on what a corresponding impact on a bank’s capital would be,” Lylozian said. “The impact really depends on the existing allowance level, the types of loans” in a bank’s portfolio, the loans’ credit quality, economic conditions and other factors, she said.
Banking agencies, however, are in the early stages of planning how to monitor and analyze “that interplay between the allowance and impact on capital,” she said.
Lylozian was outlining the standard on credit losses and impairments issued by the Financial Accounting Standards Board earlier this year. The rules are of paramount importance to banks. Larger banks are to begin applying the new rules in 2020.
The new FASB standard (ASU 2016-13) will lead to earlier recognition of loan losses. The FASB, in the new rules, sought to address the “too little, too late” reporting of such loan losses leading up to the financial crisis of 2008-2009.
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