Supervision and Regulation Letters

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SR 20-13:

Interagency Guidance on Credit Risk Review Systems

BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551

DIVISION OF
SUPERVISION AND REGULATION

SR 20-13
May 8, 2020

TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE BANK

SUBJECT:

Interagency Guidance on Credit Risk Review Systems

Applicability:  This guidance is relevant for state member banks, bank holding companies, savings and loan holding companies, and other institutions for which the Federal Reserve is the primary regulator.

The Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency (the agencies) are issuing the attached interagency guidance on credit risk review systems for supervised institutions.1 The guidance replaces the “Loan Review Systems” guidance, which is contained in Attachment 1 of the 2006 Interagency Policy Statement on the Allowance for Loan and Lease Losses.2

The credit risk review guidance discusses sound management of an institution’s credit risk; a system of independent, ongoing credit review; and appropriate communication regarding the performance of the institution’s loan portfolio to its management and board of directors.  Terminology in the guidance was adjusted to be consistent with the current expected credit losses methodology, a 2016 accounting standards change.3 This guidance describes practices that the agencies generally consider consistent with safety-and-soundness standards.4

Reserve Banks are asked to distribute this letter to the supervised organizations in their districts, as well as to appropriate supervisory and examination staff. Questions regarding this guidance should be directed to the following staff in the Division of Supervision and Regulation:  Kathryn Ballintine, Manager, Policy Development, at (202) 452-2555, or Carmen Holly, Lead Financial Institution and Policy Analyst, at (202) 973-6122. In addition, supervised organizations may send questions via the Board’s public website.5

signed by
Michael S. Gibson
Director
Division of
Supervision and Regulation

Partially Supersedes:
  • SR letter 06-17, “Interagency Policy Statement on the Allowance for Loan and Lease Losses,” entitled “Loan Review Systems”
Attachments:
Cross References:
  • SR letter 20-12, “Interagency Policy Statement on Allowances for Credit Losses”
  • SR letter 13-19, “Guidance on Managing Outsourcing Risk”
  • SR letter 13-18, “Uniform Agreement on the Classification and Appraisal of Securities Held by Depository Institutions”
  • SR letter 03-5, “Internal Audit Function and its Outsourcing”
Notes:
  1. See Board press release, May 8, 2020, at:  https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200508a.htm  Return to text.
  2. See SR letter 06‑17, “Interagency Policy Statement on the Allowance for Loan and Lease Losses.”  Return to text.
  3. See Financial Accounting Standards Board, Accounting Standards Codification Topic 326, which revises the accounting for the allowances for credit losses (ACLs) and introduces Current Expected Credit Losses (CECL). The agencies’ final guidance on CECL is contained in a separate notice. See SR letter 20-12, “Interagency Policy Statement on Allowances for Credit Losses.”  Return to text.
  4. See 12 CFR 208, Appendix D-1.  Return to text.
  5. See http://www.federalreserve.gov/apps/contactus/feedback.aspx.  Return to text.
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Last Update: May 08, 2020