CECL webinar details calculation method, CUs invited to workshop
Federal financial regulators conducted a webinar on the current expected credit loss (CECL) standard Thursday, going over supervisory expectations and detailing a method for calculating credit losses that is appropriate for smaller, less complex institutions. A recording of the webinar is available and can be viewed by registering here.
During the webinar, staff from the Financial Accounting Standards Board (which issued CECL) announced that it will host a closed-door CECL workshop for credit unions and community banks April 30. Credit unions interested in participating should contact FASB’s Shayne Kuhaneck; CUNA also asks that those interested CC CUNA Senior Director of Advocacy and Counsel Luke Martone so CUNA can have a sense of how many credit unions join the workshop to help inform future programming and member services.
CECL is a new accounting standard that changes the accounting for credit losses. Differing from the current “incurred-loss” approach, CECL is a forward-looking standard that recognizes lifetime expected credit losses.
CUNA has called on NCUA to provide credit unions with resources to implement CECL. In addition to the webinar, regulators issued an updated frequently asked questions document earlier this month.
Alison Clark, chief accountant at NCUA, spoke at the webinar, said NCUA’s approach aligns with that of other agencies, and mentioned NCUA’s letter to credit unions (19-CU-01) that details what credit unions can expect from examiners regarding CECL compliance in 2019.
“Just as our regulatory counterparts are, we too are assessing the progress of the credit union industry. Examiners are asking … soft touch, kind of ‘get the conversation started’ kinds of questions. There will be no administrative actions in your exam report this year relative to CECL or the way you answer the questions,” she said. “For most credit unions, the effective date probably will be January 2022.”
The webinar detailed the Weighted Average Remaining Maturity (WARM) method, a method entities can use to estimate expected credit losses. CECL allows for various methods to calculate these losses, and WARM is one that is usable for smaller, less complex institutions.
The WARM method uses average annual charge-off rates and remaining life to estimate the allowance for credit losses.
While WARM is a method entities can use, the webinar makes clear that WARM is not a regulator-preferred or “safe harbor” method, and there is no one method that is appropriate for every portfolio.
“If you haven’t started don’t panic but please, please do not wait any longer.... credit unions too need to become familiar with the standard, read the FAQs, and begin thinking about how the WARM method, demonstrated today, might work for your portfolios,” Clark said.
The CECL standard itself contains information on a variety of methods that are acceptable.