Bankers prepping for a new accounting standard for loan losses have been thrown a curveball.
The Financial Accounting Standards Board has signaled support for an amendment that would require financial institutions to break charge-offs and recoveries out by vintage year. The late-hour change to the standard for Current Expected Credit Losses, or CECL, received enthusiastic backing from investors and analysts because it will provide more insight into credit trends.
The response from bankers has been more subdued.
Banks tend to report charge-offs and recoveries in aggregate terms, so accounting for them on a year-by-year basis could require new systems, Daniel Palomaki, a managing director for accounting policy and controller of the Institutional Clients Group at Citigroup, said at a Nov. 1 meeting of a group FASB formed to discuss CECL implementation.
The effort — and expense — would be significant, even for a bank with Citi’s resources.
“From our perspective, it’s a surprise,” Palomaki said of the proposed amendment.
Read more in American Banker.