Office of the Comptroller of the Currency, Federal Reserve, Federal Deposit Insurance Corporation, National Credit Union Association
- The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the National Credit Union Administration (collectively, the agencies) are issuing a revised interagency policy statement on allowances for credit losses (ACLs) (revised statement).
- The agencies are issuing the revised statement in response to changes to U.S. generally accepted accounting principles (GAAP) as promulgated by the Financial Accounting Standards Board (FASB) in Accounting Standards Update (ASU) 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures issued in March 2022.
- On June 1, 2020, the agencies published in the Federal Register an interagency policy statement (original statement) in response to changes to GAAP as promulgated by the FASB in ASU 2016–13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments issued between June 2016 and the date of issuance of the original statement (collectively, Topic 326).
- In March 2022, the FASB further amended Topic 326 with the issuance of ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (ASU 2022-02). ASU 2022-02 eliminates the recognition and measurement accounting guidance for Troubled Debt Restructurings (TDRs) by creditors upon adoption of Topic 326.
- This policy statement describes the current expected credit losses (CECL) methodology for determining the ACLs applicable to loans held-for-investment, net investments in leases, and held-to-maturity debt securities accounted for at amortized cost.
TLDRS:Why are Held-to-Maturity assets interesting? Remember:
Quarterly Trends for Consolidated U.S. Banking Organizations 4th quarter 2022: Held-to-Maturity assets ~10% of assets. Remember, unrealized losses on available–for–sale and held-to-maturity securities totaled $620 billion in the 4th quarter.
- Unrealized losses on available–for–sale and held-to-maturity securities totaled $620 billion in the fourth quarter
- The combination of a high level of longer-term asset maturities and a moderate decline in total deposits underscored the risk that these unrealized losses could become actual losses should banks need to sell securities to meet liquidity needs.
- This latent vulnerability within the banking system would combine with several other prevailing conditions to form a key catalyst for the subsequent failure of SVB and systemic stress experienced by the broader banking system.