U.S. Comptroller of the Currency Thomas Curry said a proposed change to the way banks set aside reserves for bad loans is an “important step.”
Curry said he supports a plan by the Financial Accounting Standards Board that would require banks to set aside more reserves earlier for bad loans when “reasonable and supportable forecasts” estimate a shortfall for a loan. Curry and other bank regulators have warned banks not to reduce loan-loss reserves to show higher profits.
Curry, the top U.S. national bank regulator, said lenders’ complaints about the new accounting proposal are “exaggerated” and the change would require only a “far more modest” increase in reserves than the lenders have suggested.
“None of this comes with a guarantee for a crisis-free future,” Curry said in remarks prepared for a speech at a conference of the American Institute of Certified Public Accountants in Fort Washington, Maryland. “But the steps proposed in the new accounting standard improve the chances that when credit quality turns down and risk turns up, as they are certain to do in the future, banks’ allowance levels will appropriately reflect the risks retained in their loan portfolios.”
Curry also said he is concerned that the proposal may be burdensome for community banks and debt securitizers. 2He said the OCC has urged FASB to provide “adequate” implementation time for smaller, less complex banks.