Accounting

On Loan Loss Reporting, FASB to Prescribe ‘Vintage’ Disclosures to Gauge Credit Quality

Banks would have to disclose information about the credit quality of financial assets broken down by the time of origination of the assets, under a proposed accounting requirement favored by the Financial Accounting Standards Board.At its Feb. 11 meeting on impairment-related footnote disclosures, FASB voted to require that credit quality indicators should be disaggregated by “vintage” for all classes of financing receivables, excluding revolving lines of credit.The board wouldn't call for disclosure of reasons for any changes in estimates.Enterprises need not carry out such vintage disclosure beyond five years, FASB decided. The footnote reporting would be done on an interim and annual reporting basis.The planned disclosure requirements are to be part of a long-brewing standard on impairment, including accounting for loan losses, that was accorded much more importance after the financial crisis of 2008-2009FASB hopes to issue the new set of rules in the middle of this year.Banks Voice Criticism At the Feb. 11 meeting, Harold Schroeder, a FASB member and former banking analyst, was the most outspoken supporter of the vintage disclosure proposal. He said such information is valuable to investors and is being discussed in conference calls that banks hold with analysts.“I think it's being widely used and that use is increasing,” Schroeder said.Banking groups have registered their criticism of the enhanced credit quality disclosures.Those groups question the utility of such disclosure information. They cite what they view as excessive costs in carrying out the footnote reporting that is part of the FASB's current expected credit loss, or “CECL,” model for impairment of instruments.“While we sympathize with FASB's efforts to capture the better credit quality information, we are concerned with whether the disclosure table they are considering will reflect how any banks will be managing their credit risk,” the American Bankers Association's Michael Gullette, wrote to Bloomberg BNA in an email message Feb. 11.“While we think certain vintage analysis may be required for audit purposes for audit purposes under CECL, the majority of banks will likely not place significant reliance on vintage years within their allowance estimates and we question whether this specific vintage information will be used by their credit risk managers,” wrote Gullette, an ABA accounting specialist.The...

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