FASB ALLL Proposed Rule Change
FASB’s proposed rule change on how to account for credit losses has stirred up a lot of conversation, as well as concern, among many financial institutions, trade groups and agencies, including the NCUA. While not final, the rule would essentially change the current historically based method of calculating loan losses, and replace it with a forward looking expected loss model. The details of the proposed rule can be found by clicking here.
Whether or not you agree with the proposed rule, it’s never too early to begin considering how it could impact your credit union if implemented. Consider taking some time with your management or ALCO to think through some of the possible consequences this rule could have, and how your credit union might respond. For example, how might it impact future lending decisions? How will earnings and net worth be impacted once the rule is implemented?
Even if the rule is never implemented, the strategic thinking process is not a futile effort. Many credit unions find great value in taking the time to complete this kind of exercise. However, if the rule is in fact implemented down the road, your credit union will have a head start on understanding what the impacts might be and how to respond.
