Status Quo Advised on Reserves

Article excerpt

Since efforts to overhaul loan-loss accounting are stymied, federal regulators are advising banks in the meantime to use existing guidelines for calculating reserve levels.

In a March 1 letter the Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., Office of Thrift Supervision, and National Credit Union Administration told banks that the American Institute of Certified Public Accountants' standards-setting committee had scaled back its plan to revamp accounting for loan and lease losses (ALLL).

The accountant group could pursue new disclosures on loan losses, but it appears that it "will not issue additional loss recognition and measurement guidance," the regulators wrote. "Consequently, financial institutions should continue to determine the appropriateness of their ALLL on the basis of the existing guidance set forth in [generally accepted accounting principles] and in the agencies' supervisory guidance."

The accountant group had been working since 1999 on a broad overhaul of loan-loss accounting, but encountered resistance from several quarters -- including the banking regulators. …