Overview / Major Events
This week Governor Reynolds named the first person of color to ever serve on the Iowa Supreme Court. Iowa Appeals Court Judge Christopher McDonald (born in Thailand of a Scottish-Irish father and Vietnamese mother) will join the Iowa Supreme Court as its seventh member in the next few weeks.
Judge McDonald is Governor Reynolds second pick to the Iowa Supreme Court (of the remaining five, two were selected by Governor Branstad in 2011 and the remaining three chosen by previous administrations). At just 44 years of age, Judge McDonald could serve in this capacity for more than two decades.
Senator Jeff Danielson Abruptly Resigns from the Iowa Senate
Long time State Senator Jeff Danielson (D-Cedar Falls) abruptly resigned this week from both the Iowa Senate and his position as a fire fighter for the city of Cedar Falls, with little in the way of explanation. Danielson was serving in his fourth term in the Iowa Senate and said the resignations were necessary due to a dispute Cedar Falls fire fighters were having with the city government over a new city personnel policy.
CBI Urges You to Read the Summary of the FASB Proposal
The Financial Accounting Standards Board has proposed an Accounting Standards Update on credit losses that will require every community bank in the country to revise the way they account for their loan loss reserves (ALLL) and the way they account for their securities. Please read the Summary and Questions and Answers below. Also, we encourage you to send a comment letter to FASB (email@example.com) expressing your views on the proposal. A link to a sample letter is provided below. Please use this letter as a guide and customize to your bank’s specific concerns.
READ THE FULL PROPOSAL
Why is FASB proposing changes to the allowance for credit losses?
There is a general consensus that the recent financial crisis was caused and prolonged by the delayed recognition of credit losses stemming from the adoption of the incurred loss model. The lack of forward-looking information in loss estimates and the reliance on multiple credit impairment models resulted in carrying values for financial instruments that were overstated.
How does the proposal change the current provisioning method?
The current incurred loss model and the historical loss model would be replaced by an expected credit loss model that would require the bank to generate an estimate of contractual cash flows not expected to be collected. The generation of estimated cash flows would be based on reasonable and supportable forecasts. Banks would be prohibited from generating an estimate of credit losses based solely on the most likely outcome. The proposed expected credit loss model would apply to both loans and investment securities.
When is FASB expected to issue a final accounting standards update on these changes?
FASB has announced that they expect to finalize the allowance changes in the first quarter of 2014.
Does the proposal result in a day one loss for new loans recorded on the balance sheet?
Yes. When a loan is initially recognized on the balance sheet the net present value of contractual cash flows not expected to be collected would be recorded under the loan loss provision.
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