Adrian JohnsonTLDR:
- The OCC has released Version 2.0 of the Lease Financing booklet of the Comptroller Handbook.
- The new version includes updates to reflect changes in lease accounting standards and provides greater guidance on risk management and examination procedures.
- The revision emphasizes that banks must incorporate expertise in accounting standards into their risk management policies and procedures.
- It also expands expectations for banks in terms of managing interest rate and liquidity risk.
- The new version provides extensive detail and checklists to help banks prepare for OCC examinations.
The Office of the Comptroller of the Currency (OCC) has issued Version 2.0 of the Lease Financing booklet of the Comptroller Handbook. This version replaces the previous edition published in 2014 and updated in 2016 and 2017. The new version has been updated to reflect changes in lease accounting standards and provides more detailed guidance on risk management and examination procedures.
An important update in Version 2.0 is the emphasis on accounting standards expertise in risk management policies and procedures. The Financial Accounting Standards Board (FASB) has made changes to lease accounting standards in recent years, and banks’ risk management practices must incorporate these changes. The new version of the booklet explains that leases must be categorized as sales-type, direct financing, or operating leases based on ASC Topic 842, which supersedes the previous lease accounting standard, ASC Topic 840. The applicable tax treatment is then determined based on the lease category.
Version 2.0 also provides more detailed guidance on risk management systems and examination procedures. It expands upon the previous version’s guidance on the eight categories of risk applicable to leasing programs: credit, interest rate, liquidity, price, operational, compliance, strategic, and reputation. Banks are expected to implement more sophisticated risk management systems and comprehensive examination procedures to identify, measure, monitor, and control these risks.
The new version of the booklet includes additional requirements for banks in areas such as policies, personnel, underwriting standards, financial and repayment capacity analysis, and valuation and residual analysis. It also increases expectations for banks in managing interest rate and liquidity risk, requiring the use of control systems to manage these risks.
In conclusion, Version 2.0 of the Lease Financing booklet reflects changes in lease accounting standards and increased regulatory scrutiny of banks. While it increases regulatory demands on banks, it also provides detailed guidance and checklists to help banks prepare for OCC examinations.
