The Financial Accounting Standards Board’s new incurred loss methodology requires financial institutions to adjust for expectations of future lifetime losses from their loans, not just for past and present credit losses. U.S. banks will, therefore, need to keep additional loan loss reserves. That change could have “an immediate negative impact on capital ratios,” says S&P.
Although the accounting standard doesn’t take effect for publicly held banks that file with the Securities and Exchange Commission until January 2020, a few banks have already hinted at the accounting rule’s impact.
Citigroup, for example, estimated the loan loss accounting methodology would increase its reserves by 10% to 20%. JP Morgan Chase’s projection is even higher, at 35%. U.S. Bancorp expects a 20% to 30% increase.
Read More.. Source CFO