‘Allowance for credit loss’ policy under CECL adopted by credit union regulator; ‘day one’ phase-in vowed

The National Credit Union Administration (NCUA) Board adopted an interagency policy on allowances for credit losses (ACLs) as affected by the upcoming current expected credit loss (CECL) accounting standard at its meeting Thursday in Alexandria, Va., at agency headquarters.

The proposed statement was issued in October by the federal financial institution regulators. In it, the agencies described the CECL methodology for determining ACLs at the institutions they supervised that are applicable to financial assets measured at amortized cost, including loans held for investment, net investments in leases, held-to-maturity (HTM) debt securities, and certain off-balance-sheet credit exposures. The adoption by NCUA of the statement ensures that all federal financial institution regulators are on board with the statement.

The CECL standard takes effect for most smaller financial institutions, including credit unions, in 2023.

However, NCUA Board Chairman Rodney Hood reiterated his view (as expressed last fall) that NCUA will allow for a “day one” phase-in of the capital impact of the new standard. Hood has said doing so will provide relief to credit unions that could see large increases in their loan-loss reserves.

NCUA Board Member Todd Harper said he supported that approach – but said he wanted the agency to “move forward in the second quarter” of this year on a “day one” mitigation treatment.

Interagency Policy Statement on Allowances for Credit Losses