Suggested steps for management to consider in preparation for implementation of the new current expected credit loss (CECL) accounting standard are among the items listed in a “frequently asked questions” document issued Dec. 19 by the National Credit Union Administration and other federal financial regulatory agencies.
Other agencies issuing the FAQs were the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.
In a letter to credit unions (16-CU-13), NCUA Board Chairman Rick Metsger noted that, although the regulatory reporting effective date for the new accounting standard is not until Dec. 31, 2021, “your credit union needs to take steps in advance to ensure effective implementation of the standard,” he wrote.
The NCUA Chairman noted that the new CECL standard may result in a decrease in net worth upon implementation for some credit unions, and that his agency is training credit union examiners to take this switch into account when evaluating capital adequacy. “To assist with this transition, we will add a new ratio to the Financial Performance Report to illustrate net worth differences prior to and after implementation of CECL. Credit unions should evaluate and plan for the potential impact of the new accounting standard on regulatory capital,” he wrote.
Metsger stated that the credit union regulatory agency continues to work with the other federal banking agencies to develop uniform guidance and supervisory expectations. “We will expand and release this Frequently Asked Questions document as new or updated issues are developed,” he stated.