New OCC exam booklet will apply to banks using CECL

A new “Allowance for Credit Losses” (ACL) booklet of the agency’s supervision and examination handbook announced Thursday will be used in supervising community banks that have adopted the “current expected credit losses” (CECL) accounting methodology, the Office of the Comptroller of the Currency (OCC) said Thursday.

The booklet applies to the OCC’s supervision of community banks that have adopted the CECL methodology under the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) Topic 326. In a bulletin, the agency reminded that most community banks won’t be using CECL until 2023. It added that there is “no expectation for a small, noncomplex bank to use a sophisticated measurement model to satisfy the requirements of ASC Topic 326.”

The OCC said this new booklet of the Comptroller’s Handbook addresses:

  • the CECL methodology’s scope, risks associated with ACLs, and seven primary components used to estimate ACLs;
  • documentation and considerations for expected credit losses;
  • estimation processes, including validation of and internal controls over these processes;
  • the maintenance of appropriate ACLs;
  • the responsibilities of boards of directors and management;
  • examiner reviews of ACLs;
  • procedures to aid examiners when assessing appropriateness of a bank’s ACL methodologies and balances.

The booklet is consistent with the “Interagency Policy Statement on Allowances for Credit Losses” conveyed by OCC Bulletin 2020-49 and the “Frequently Asked Questions on the New Accounting Standard on Financial Instruments – Credit Losses” conveyed by OCC Bulletin 2019-17, the agency said.

OCC Bulletin 2021-20