Bank Regulators Oppose Loan Loss Proposal

OCTOBER 10, 2003


Bank Regulators Oppose Loan Loss Proposal

Calling it "fundamentally flawed," federal bank regulators have gone on record strongly opposing a proposal by the American Institute of Certified Public Accountants that would significantly change the way banks set their allowance for loan losses. "As principals of the agencies entrusted by Congress with responsibility for the safety, soundness, and stability of U.S. financial institutions, we strongly oppose the proposed (guidance) and respectfully recommend that you abandon it," wrote comptroller of the currency Jerry Hawke, Fed governor Susan Bies, FDIC chairman Don Powell, OTS director Jim Gilleran and NCUA chairman Dennis Dollar in a letter to the AICPA.

The regulators told the AICPA that while they share the objective of preventing loan-loss allowance methodologies that "game" the system, they believe that assessing allowance adequacy and the underlying methodology are critical supervisory calls, not merely accounting considerations.

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