Ag debt, CECL transition risks on radar for national banks, comptroller says

Solo proposal on CRA regulation reform possible by year’s end

Risks associated with agricultural debt and banks’ transition to new accounting standards for current expected credit losses (CECL) are among the top risks the regulator of national banks is watching carefully, the agency’s head said Wednesday.

On Tuesday, in separate remarks, Comptroller of the Currency Joseph Otting also reportedly said his agency is prepared to move forward with a proposal to reform regulations implementing anti-redlining laws.

On Wednesday, Otting told an audience in Japan – at the Special Seminar on International Finance in Tokyo – that agricultural debt and CECL risk rank with credit, interest rate, operational, and compliance risks for banks that the Office of the Comptroller of the Currency (OCC) is watching.

“The United States is one of the major agricultural producers in the world. Potential for renewed declines in prices for grain crops, livestock, and dairy may compound three years of declining prices and increasing debt for agriculture borrowers and their ability to service debt,” he said.

Regarding the CECL accounting standard, Otting said its implementation – which is scheduled to take place beginning next year for some banks – “may pose operational and strategic risks to some banks when measuring and assessing the collectability of financial assets.”

“All of these risks require close scrutiny to ensure banks can continue to fuel economic growth and continue to operate in a safe and sound manner,” Otting said.

On Tuesday, during a question-and-answer session at a conference in New York, Otting reportedly said the OCC will have a Community Reinvestment Act (CRA) regulatory reform proposal ready by year’s end. He also indicated that the other federal banking agencies may not be ready to join his agency’s proposal then.

In other remarks, Otting reportedly said that the OCC, unlike the Federal Reserve and Federal Deposit Insurance Corp. (FDIC), is not necessarily ready to propose changes to the examination ratings system, known as CAMELS (which stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity – the primary elements reviewed in a financial institution examination).

The Fed and the FDIC in October issued a call for comment on the ratings system.

Comptroller of the Currency Discusses Condition of the U.S. Banking System