By the Division of Banks

October 2, 2012

TO: the Chief Executive Officer Addressed:

RE: Policy on Allowance for Loan Loss and Lease Losses (ALLL) Requirements

The Division of Banks (Division) is undergoing a review of its Regulatory Bulletins to identify opportunities to reduce regulatory burden and compliance redundancy by streamlining, updating, or repealing requirements wherever warranted. This effort is being undertaken as a result of several focus group meetings that the Division held with the credit union industry during 2011. It is also a component of the agency's current strategic planning process.

The purpose of this letter is to notify Massachusetts state-chartered credit unions that Regulatory Bulletin 4.2-101, entitled Loan Loss Reserve Requirements, has been repealed in its entirety. However, it is important to emphasize that, although this Bulletin has been repealed, each credit union is required to establish and maintain an ALLL in accordance with Generally Accepted Accounting Principles. A properly funded and managed ALLL is critical to a credit union's risk profile and remains a key factor within the scope of each examination conducted by the Division.

The current authoritative source of accounting guidance on the establishment of the ALLL is the Financial Accounting Standards Board's Accounting Standards Codification Subtopic 450-20, Contingencies - Loss Contingencies and Topic 310, Receivables. Credit unions are required to adhere to all such relevant accounting standards, as amended from time to time, in the establishment and maintenance of the ALLL. Credit unions may also refer to National Credit Union Administration Interpretive Ruling and Policy Statement 02-3, entitled Allowance for Loan and Lease Losses Methodologies and Documentation for Federally-Insured Credit Unions, for guidance.

Should you have any questions relative to this matter, please contact Senior Deputy Commissioner Jay Bienvenu at (617)956-1535 or


David J. Cotney
Commissioner of Banks