In Brief: Loan-Loss Reserve Policy Issued

WASHINGTON - Federal bank and thrift regulators have completed a policy statement for loan-loss reserving that puts significant emphasis on management judgment and historical data.

The statement, which was published in the Federal Register on Friday and issued in conjunction with the Securities and Exchange Commission, is very similar to an initial version proposed last year. It would have conflicted with a separate proposal by accounting rulemakers, which would have eliminated the management analysis method of accounting for loan-loss reserves. But the American Institute of Certified Public Accountants later revised its proposal to allow more flexibility.

The policy statement issued last week gave many more details than the previous proposal, including several examples of which methodology banks should use to calculate reserves. The rule clarified that a bank's board of directors is responsible for maintaining proper reserves; stated that the process must be thorough, disciplined, and consistently enforced; and maintained that reserves should be supported by documentation that is consistent with generally accepted accounting principles and applicable supervisory guidelines.