Agencies move to be consistent with GAAP for recognizing, measuring TDRs by creditors

The elimination under revised accounting rules of recognition and measurement of troubled debt restructurings (TDRs) by creditors, and removal of references to TDRs, led to issuance Friday of an interagency policy statement by the three federal banking agencies and the federal credit union regulator.

Under the revised interagency policy statement on allowances for credit losses (ACLs), the Federal Deposit Insurance Corp. (FDIC), Federal Reserve, National Credit Union Administration (NCUA) and the Office of the Comptroller of the Currency (OCC) noted that in May 2020, they issued their original statement in response to changes to generally accepted accounting principles (GAAP) on accounting for credit losses that included the new Current Expected Credit Losses (CECL) methodology.

However, the agencies also noted, in March 2022, the Financial Accounting Standards Board (FASB) issued its Accounting Standards Update (ASU) 2022-02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” That update eliminated the recognition and measurement accounting guidance for TDRs by creditors upon adoption, the agencies noted.

“To maintain conformance with GAAP following the issuance of ASU 2022-02, the agencies are revising the original statement (of May 2020) to remove references to TDRs. The agencies are also correcting a citation to a regulation in footnote 4 of the original statement. No other changes are being made to the original statement. Through this notice, the agencies are publishing the revised statement,” the agencies stated.

The agencies noted that the revised statement continues to describe the measurement of expected credit losses under the CECL methodology and the accounting for impairment on available-for-sale debt securities in accordance with Topic 326; the design, documentation, and validation of expected credit loss estimation processes, including the internal controls over these processes; the maintenance of appropriate ACLs; the responsibilities of boards of directors and management; and examiner reviews of ACLs.

OCC Bulletin 2023-11: Current Expected Credit Losses: Interagency Policy Statement on Allowances for Credit Losses (Revised April 2023)