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U.S. Banks Seek Additional Guidance for Write-Downs

Showing concern for the Financial Accounting Standards Board’s (“FASB”) planned standard for writing down credit losses, the American Bankers Association (“ABA”) has asked U.S. bank regulators to create guidance associated with the accounting proposal. In a letter last month discussing the Basel Committee on Banking Supervision’s proposal Guidance on Accounting for Expected Credit Losses, ABA vice president Michael Gullette said banks are worried that there will be intense pressure to follow the guideline even if some parts are not related to the FASB’s final standard.

The FASB’s final standard is likely to be based on proposed Accounting Standards Update No. 2012-260, Financial Instruments—Credit Losses (Subtopic 825-15). Accountants believe the standard will adopt the current expected credit loss (CECL) model, which requires a bank to disclose at each reporting period an allowance for credit losses on financial assets equivalent to its estimate of the total losses expected to bear during the lifespan of the assets. The ABA also believes the proposed guidance from international banking overseers regarding write-downs will be more biased to International Financing Reporting Standards (IFRS) and insufficient to the needs of U.S. banks. Fortunately, U.S. bank regulators plan to offer guidance that includes CECL.