ALEXANDRIA, Va. -- NCUA and the other federal financial regulators last week issued a revised interagency policy statement on the Allowance for Loan and Lease Losses, supplemented with frequently asked questions.
The statement updates and replaces a 1993 statement, of which NCUA had not been a part, and extends it to all federally insured credit unions and their examiners. "The agencies believe an assessment of the appropriateness of the ALLL is critical to the safety and soundness of a financial institution, especially in today's uncertain economic environment and when concentrations in untested loan products are present. The policy statement has been updated to ensure consistency with generally accepted accounting principles and post-1993 supervisory guidance," the announcement read.
The revised policy statement updates guidance on a variety of topics concerning ALLL, including the responsibilities of the boards of directors, management, and examiners of banks and savings associations regarding the ALLL; factors to be considered in the estimation of the ALLL; and the objectives and elements of an effective loan review system, including a sound credit grading system.
The Interagency Policy Statement on the ALLL and the FAQs are available online at http://www.ncua.gov/GuidesManuals/accounting_bulletins/2006/06-01ALLL.pdf.