Fed to phase in new accounting standard for credit losses

The Federal Reserve Board (Fed) announced last week that it intends to phase in the new accounting standard for credit losses, known as the “Current Expected Credit Losses” (CECL) methodology.

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The proposal addresses the regulatory capital treatment of credit loss allowances under the CECL methodology, explained the Fed. It would allow banking organizations to phase in the day-one regulatory capital effects of CECL adoption over the course of three years.

To do this, the Fed would revise its regulatory capital rules and other rules to take into consideration the new accounting standard.

The new accounting standard was established by the Financial Accounting Standards Board in June 2016. The new accounting standard for credit losses replaces the existing incurred loss methodology for certain financial assets and includes the CECL methodology.

The effective date of the standard may be early adopted by banking organizations in January 2019.

The Fed’s new rule was done in coordination with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.

The Fed is accepting comments on the proposal will be accepted for 60 days after publication in the Federal Register.