FIL-55-2020
May 8, 2020
Interagency Guidance on Credit Risk Review Systems
Printable Format:
Summary:
The FDIC, the Federal Reserve Board, the Office of the Comptroller of the Currency, and the National Credit Union Administration have jointly issued the final Interagency Guidance on Credit Risk Review Systems (interagency guidance). The interagency guidance replaces the guidance in Attachment 1 – Loan Review Systems, which is part of the December 2006 Interagency Policy Statement on the Allowance for Loan and Lease Losses. Additionally, the interagency guidance aligns with the Interagency Guidelines Establishing Standards for Safety and Soundness.1
Statement of Applicability to Institutions with Total Assets Under $1 Billion: This Financial Institution Letter (FIL) applies to all FDIC-supervised depository institutions.
Highlights:
- The interagency guidance highlights the important role of credit risk review systems in an institution’s overall risk management program.
- The interagency guidance is a stand-alone document that updates and replaces existing guidance on the elements of an effective credit risk review system currently contained in Attachment 1 – Loan Review Systems to the December 2006 Interagency Policy Statement on the Allowance for Loan and Lease Losses.
- The interagency guidance:
- Articulates principles for sound credit risk management that include a system of independent, ongoing credit risk review and appropriate communication to management and the board of directors regarding the performance of the institution’s loan portfolio.
- Describes a broad set of practices and principles to be considered when developing and maintaining a credit risk review system, including: qualifications and independence of credit risk review personnel; the frequency, scope, and depth of reviews; and the review, follow-up, communication, and distribution of results.
- Reflects current industry credit review practices, as well as terminology that is consistent with Accounting Standards Update No. 2016–13, which introduces the current expected credit losses (CECL) methodology and replaces the existing incurred loss methodology in U.S. GAAP. A new Interagency Policy Statement on Allowances for Credit Losses that describes the CECL methodology is being issued separately.
- The principles described in the interagency guidance are designed to be commensurate with the institution’s size, nature and scope of operations, loan portfolio types, risk profile, and risk management practices.