Paydowns ECL Scenarios for US GAAP

The following scenarios describe ledger entries for paydowns when you use asset-level expected credit loss (ECL) with a GAAP accounting basis. 

Paydown for US GAAP – AFS

The entity purchases one lot of a loan-backed security, par of 1,000 and a cost of $900 and a factor of 1. The lot subsequently has an expected credit losses of $30 applied to it. Ledger entries follow for a GAAP accounting basis with an AFS (Available for Sale) regulatory category. 

10% of the position is paid down with a gain of $10. Because 10% of the position is being closed, $3 of ECL is proportionally reduced. Note that the gain/loss is not impacted by the reduction in ECL.

Principal Loss on Paydown Processing Flag (Tag 2925) on Accounting Basis = Realized Gain/Loss

Principal Loss on Paydown Processing Flag (tag 2925) on Accounting Basis = Accelerated Amortization

Paydown for US GAAP – HTM

The entity purchases one lot of a loan-backed security, par of 1,000 and a cost of $900 and a factor of 1. The lot subsequently has an expected credit losses of $30 applied to it. Ledger entries follow for a GAAP accounting basis with an HTM (Held to Maturity) regulatory category. 

Principal Loss on Paydown Processing Flag (tag 2925) on Accounting Basis = Realized Gain/Loss

Principal Loss on Paydown Processing Flag (tag 2925) on Accounting Basis = Accelerated Amortization