CFO: Better Loss Model May Have Prevented Bank Failures
CFO reported that the accounting model banks use to set reserves for loan losses contributed to the large number of community bank failures during the financial crisis, citing a new report from the Government Accountability Office.
CFO said weak loan underwriting and risky funding sources resulting from aggressive growth strategies caused the bulk of community bank failures from 2008 to 2011, according to the GAO report. But the Generally Accepted Accounting Principles model banks use for recognizing credit losses, which was based on historical loss rates that were unusually low pre-crisis, was also partly to blame.
To read the full CFO article click here.
To read the GAO’s report click here.