ALEXANDRIA, Va.—During a webinar it hosted on its new simplified current expected credit loss (CECL) tool, NCUA clarified that while it is primarily designed for credit unions with less than $100 million in assets, any size credit union can use the tool if the tool fits the business and financial products of the credit union.
The new tool uses the weighted average remaining maturity (WARM) methodology to estimate the allowance for credit loss
“While this tool is designed for the small credit unions, it does not preclude larger credit unions from using the tool,” said NCUA Director of the Office of Examination and Insurance Kelly Lay. “We made the tool flexible to allow any credit union to adopt the tool to their specific circumstances.”
During the webinar, NCUA staff noted the tool is only for estimating the allowance for credit losses on loans and lease portfolios.
Credit unions needing to estimate losses on investments will need to work with an accountant on an appropriate methodology, the agency said. Similarly, loan participations would need to be calculated separately, outside of the CECL tool.
Of note, the NCUA will not require the tool to have third-party validation.
Examiners to Evaluate
The agency also stated examiners will evaluate each credit union’s compliance with CECL on an individual basis, and that it will use judgement to address specific strengths and weaknesses through the supervisory process, which could include supplemental facts, examiner findings, or other administrative tools, according to NAFCU.
For info, visit NAFCU’s CECL resources or the NCUA website for several updated resources on CECL.