Federal Register / Vol. 88, No. 248 / Thursday, December 28, 2023 / Proposed Rules 89633 

1st-stage hub, HPT 2nd-stage hub, HPC 

IBR–7, and HPC IBR–8 for cracks and 

replacement if necessary. The NPRM 

also proposed to require accelerated 

replacement of the HPC IBR–7, HPC 

IBR–8, HPC rear hub, HPT 1st-stage hub, 

HPT 1st-stage air seal, HPT 1st-stage 

blade retaining plate, HPT 2nd-stage 

hub, HPT 2nd-stage blade retaining 

plate, and HPT 2nd-stage rear seal. 

The proposed actions were intended 

to address failure of the HPT 1st-stage 

hub, HPT 2nd-stage hub, HPC IBR–7, 

and HPC IBR–8, which could result in 

uncontained hub failure, release of highenergy debris, damage to the engine, 

damage to the airplane, and loss of the 

airplane. 

Actions Since the NPRM Was Issued 

Since issuance of the NPRM, the FAA 

has received information from Pratt & 

Whitney that an error was inadvertently 

included in the removal times for some 

of the HPT 1st-stage and 2nd-stage hubs, 

which would have required removal 

significantly later than necessary. 

Because the removal timeframe needed 

to be shortened, the FAA determined it 

is necessary to withdraw the NPRM and 

issue a new NPRM for the unsafe 

condition with the correct compliance 

times. 

Withdrawal of the NPRM constitutes 

only such action and does not preclude 

the FAA from further rulemaking on 

this issue, nor does it commit the FAA 

to any course of action in the future. 

Comments 

The FAA received comments on the 

NPRM. However, due to the FAA’s 

determination that it is necessary to 

withdraw and issue a new NPRM, the 

comments will be copied to Docket No. 

FAA–2023–2401 and addressed in the 

final rule for that AD action. 

Additionally, the FAA requests that the 

commenters review the new NPRM at 

Docket No. FAA–2023–2401. 

FAA’s Conclusions 

Upon further consideration, the FAA 

has determined that the NPRM does not 

adequately address the identified unsafe 

condition. Accordingly, the NPRM is 

withdrawn. 

Regulatory Findings 

Since this action only withdraws an 

NPRM, it is neither a proposed nor a 

final rule. This action therefore is not 

covered under Executive Order 12866, 

the Regulatory Flexibility Act, or DOT 

Regulatory Policies and Procedures (44 

FR 11034, February 26, 1979). 

List of Subjects in 14 CFR Part 39 

Air transportation, Aircraft, Aviation 

safety, Incorporation by reference, 

Safety. 

The Withdrawal 

■ Accordingly, the notice of proposed 

rulemaking (Docket No. FAA–2023– 

2237), which was published in the 

Federal Register on December 12, 2023 

(88 FR 86088), is withdrawn. 

Issued on December 21, 2023. 

Caitlin Locke, 

Director, Compliance & Airworthiness 

Division, Aircraft Certification Service. 

[FR Doc. 2023–28703 Filed 12–22–23; 4:15 pm] 

BILLING CODE 4910–13–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2023–2402; Project 

Identifier MCAI–2023–00370–T] 

RIN 2120–AA64 

Airworthiness Directives; Bombardier, 

Inc., Airplanes 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: The FAA proposes to adopt a 

new airworthiness directive (AD) for 

certain Bombardier, Inc., Model CL– 

600–2B16 (601–3A, 601–3R, and 604 

Variants) airplanes. This proposed AD 

was prompted by a report indicating 

that a new filter plate connector for the 

nose wheel steering (NWS) system 

electronic control module (ECM) does 

not meet certain certification 

requirements. This proposed AD would 

require replacing all affected noncompliant ECMs. This proposed AD 

would also prohibit the installation of 

affected parts under certain conditions. 

The FAA is proposing this AD to 

address the unsafe condition on these 

products. 

DATES: The FAA must receive comments 

on this proposed AD by February 12, 

2024. 

ADDRESSES: You may send comments, 

using the procedures found in 14 CFR 

11.43 and 11.45, by any of the following 

methods: 

• Federal eRulemaking Portal: Go to 

regulations.gov. Follow the instructions 

for submitting comments. 

• Fax: 202–493–2251. 

• Mail: U.S. Department of 

Transportation, Docket Operations, M– 

30, West Building Ground Floor, Room 

W12–140, 1200 New Jersey Avenue SE, 

Washington, DC 20590. 

• Hand Delivery: Deliver to Mail 

address above between 9 a.m. and 5 

p.m., Monday through Friday, except 

Federal holidays. 

AD Docket: You may examine the AD 

docket at regulations.gov under Docket 

No. FAA–2023–2402; or in person at 

Docket Operations between 9 a.m. and 

5 p.m., Monday through Friday, except 

Federal holidays. The AD docket 

contains this NPRM, the mandatory 

continuing airworthiness information 

(MCAI), any comments received, and 

other information. The street address for 

Docket Operations is listed above. 

Material Incorporated by Reference 

• For service information identified 

in this NPRM, contact Bombardier 

Business Aircraft Customer Response 

Center, 400 Coˆte-Vertu Road West, 

Dorval, Que ́bec H4S 1Y9, Canada; 

telephone 514–855–2999; email ac.yul@

aero.bombardier.com; website 

bombardier.com. 

• You may view this service 

information at the FAA, Airworthiness 

Products Section, Operational Safety 

Branch, 2200 South 216th St., Des 

Moines, WA. For information on the 

availability of this material at the FAA, 

call 206–231–3195. 

FOR FURTHER INFORMATION CONTACT: 

Steven Dzierzynski, Aviation Safety 

Engineer, FAA, 1600 Stewart Avenue, 

Suite 410, Westbury, NY 11590; phone: 

(516) 228–7300; email: 9-avs-nyacocos@faa.gov. 

SUPPLEMENTARY INFORMATION: 

Comments Invited 

The FAA invites you to send any 

written relevant data, views, or 

arguments about this proposal. Send 

your comments to an address listed 

under ADDRESSES. Include ‘‘Docket No. 

FAA–2023–2402; Project Identifier 

MCAI–2023–00370–T’’ at the beginning 

of your comments. The most helpful 

comments reference a specific portion of 

the proposal, explain the reason for any 

recommended change, and include 

supporting data. The FAA will consider 

all comments received by the closing 

date and may amend the proposal 

because of those comments. 

Except for Confidential Business 

Information (CBI) as described in the 

following paragraph, and other 

information as described in 14 CFR 

11.35, the FAA will post all comments 

received, without change, to 

regulations.gov, including any personal 

information you provide. The agency 

will also post a report summarizing each 


khammond on DSKJM1Z7X2PROD with PROPOSALS
89634 Federal Register / Vol. 88, No. 248 / Thursday, December 28, 2023 / Proposed Rules 

substantive verbal contact received 

about this NPRM. 

Confidential Business Information 

CBI is commercial or financial 

information that is both customarily and 

actually treated as private by its owner. 

Under the Freedom of Information Act 

(FOIA) (5 U.S.C. 552), CBI is exempt 

from public disclosure. If your 

comments responsive to this NPRM 

contain commercial or financial 

information that is customarily treated 

as private, that you actually treat as 

private, and that is relevant or 

responsive to this NPRM, it is important 

that you clearly designate the submitted 

comments as CBI. Please mark each 

page of your submission containing CBI 

as ‘‘PROPIN.’’ The FAA will treat such 

marked submissions as confidential 

under the FOIA, and they will not be 

placed in the public docket of this 

NPRM. Submissions containing CBI 

should be sent to Steven Dzierzynski, 

Aviation Safety Engineer, FAA, 1600 

Stewart Avenue, Suite 410, Westbury, 

NY 11590; phone: (516) 228–7300; 

email: 9-avs-nyaco-cos@faa.gov. Any 

commentary that the FAA receives 

which is not specifically designated as 

CBI will be placed in the public docket 

for this rulemaking. 

Background 

Transport Canada, which is the 

aviation authority for Canada, has 

issued Transport Canada AD CF–2023– 

14R1, dated May 15, 2023 (Transport 

Canada AD CF–2023–14R1) (also 

referred to after this as the MCAI), to 

correct an unsafe condition on certain 

Bombardier, Inc., Model CL–600–2B16 

(601–3A, 601–3R, and 604 Variants) 

airplanes. The MCAI states that the 

manufacturer of the NWS system ECM, 

part number (P/N) 601–86100–27, 

introduced a new filter plate connector 

that does not meet the certification 

requirements related to the 

susceptibility of electronic components 

to high intensity radiated field. This 

non-compliant filter plate connector, if 

not replaced, could result in a 

malfunction of the NWS system causing 

potential un-commanded steering or 

lateral excursion from the runway. 

The FAA is proposing this AD to 

address the unsafe condition on these 

products. 

You may examine the MCAI in the 

AD docket at regulations.gov under 

Docket No. FAA–2023–2402. 

Related Service Information Under 1 

CFR Part 51 

The FAA reviewed the following 

Bombardier service information. 

• Service Bulletin 604–32–032, dated 

October 18, 2021. 

• Service Bulletin 605–32–009, dated 

October 18, 2021. 

• Service Bulletin 650–32–006, dated 

October 18, 2021. 

This service information specifies 

procedures for removing and replacing 

all affected non-compliant ECMs, P/N 

601–86100–27. These documents are 

distinct since they apply to different 

airplane configurations. 

This service information is reasonably 

available because the interested parties 

have access to it through their normal 

course of business or by the means 

identified in the ADDRESSES section. 

FAA’s Determination 

This product has been approved by 

the aviation authority of another 

country, and is approved for operation 

in the United States. Pursuant to the 

FAA’s bilateral agreement with this 

State of Design Authority, it has notified 

the FAA of the unsafe condition 

described in the MCAI and service 

information referenced above. The FAA 

is issuing this NPRM after determining 

that the unsafe condition described 

previously is likely to exist or develop 

on other products of the same type 

design. 

Proposed AD Requirements in This 

NPRM 

This proposed AD would require 

accomplishing the actions specified in 

the service information already 

described. This proposed AD would 

also prohibit the installation of affected 

parts under certain conditions. 

Costs of Compliance 

The FAA estimates that this AD, if 

adopted as proposed, would affect 164 

airplanes of U.S. registry. The FAA 

estimates the following costs to comply 

with this proposed AD: 

ESTIMATED COSTS FOR REQUIRED ACTIONS

Labor cost Parts cost Cost per 

product 

Cost on U.S. 

operators 

6 work-hours × $85 per hour = $510 .......................................................................................... $75,972 $76,482 $12,543,048 

The FAA has included all known 

costs in its cost estimate. According to 

the manufacturer, however, some or all 

of the costs of this proposed AD may be 

covered under warranty, thereby 

reducing the cost impact on affected 

operators. 

Authority for This Rulemaking 

Title 49 of the United States Code 

specifies the FAA’s authority to issue 

rules on aviation safety. Subtitle I, 

section 106, describes the authority of 

the FAA Administrator. Subtitle VII: 

Aviation Programs, describes in more 

detail the scope of the Agency’s 

authority. 

The FAA is issuing this rulemaking 

under the authority described in 

Subtitle VII, Part A, Subpart III, Section 

44701: General requirements. Under 

that section, Congress charges the FAA 

with promoting safe flight of civil 

aircraft in air commerce by prescribing 

regulations for practices, methods, and 

procedures the Administrator finds 

necessary for safety in air commerce. 

This regulation is within the scope of 

that authority because it addresses an 

unsafe condition that is likely to exist or 

develop on products identified in this 

rulemaking action. 

Regulatory Findings 

The FAA determined that this 

proposed AD would not have federalism 

implications under Executive Order 

13132. This proposed AD would not 

have a substantial direct effect on the 

States, on the relationship between the 

national Government and the States, or 

on the distribution of power and 

responsibilities among the various 

levels of government. 

For the reasons discussed above, I 

certify this proposed regulation: 

(1) Is not a ‘‘significant regulatory 

action’’ under Executive Order 12866, 

(2) Would not affect intrastate 

aviation in Alaska, and 

(3) Would not have a significant 

economic impact, positive or negative, 

on a substantial number of small entities 

under the criteria of the Regulatory 

Flexibility Act. 

List of Subjects in 14 CFR Part 39 

Air transportation, Aircraft, Aviation 

safety, Incorporation by reference, 

Safety. 


khammond on DSKJM1Z7X2PROD with PROPOSALS
Federal Register / Vol. 88, No. 248 / Thursday, December 28, 2023 / Proposed Rules 89635 

The Proposed Amendment 

Accordingly, under the authority 

delegated to me by the Administrator, 

the FAA proposes to amend 14 CFR part 

39 as follows: 

PART 39—AIRWORTHINESS 

DIRECTIVES 

■ 1. The authority citation for part 39 

continues to read as follows: 

Authority: 49 U.S.C. 106(g), 40113, 44701. 

§ 39.13 [Amended] 

■ 2. The FAA amends § 39.13 by adding 

the following new airworthiness 

directive: 

Bombardier, Inc.: Docket No. FAA–2023– 

2402; Project Identifier MCAI–2023– 

00370–T. 

(a) Comments Due Date 

The FAA must receive comments on this 

airworthiness directive (AD) by February 12, 

2024. 

(b) Affected ADs 

None. 

(c) Applicability 

This AD applies to Bombardier, Inc., 

Model CL–600–2B16 (601–3A, 601–3R, and 

604 Variants) airplanes, certificated in any 

category, with serial numbers 5301 through 

5665 inclusive, 5701 through 5990 inclusive, 

and 6050 and subsequent. 

(d) Subject 

Air Transport Association (ATA) of 

America Code 32, Landing gear. 

(e) Unsafe Condition 

This AD was prompted by a report 

indicating that a new filter plate connector 

for the nose wheel steering (NWS) system 

electronic control module (ECM) does not 

meet certain certification requirements. The 

FAA is issuing this AD to address this noncompliant filter plate connector, which, if not 

replaced, could result in a malfunction of the 

NWS system causing potential 

uncommanded steering or lateral excursion 

from the runway. 

(f) Compliance 

Comply with this AD within the 

compliance times specified, unless already 

done. 

(g) Verification of Airplane Technical 

Records 

Within 24 months after the effective date 

of this AD: Inspect the serial number of the 

ECM, P/N 601–86100–27, in accordance with 

Section 2.B. Part A of the Accomplishment 

Instructions of the applicable service 

information listed in figure (1) to the 

introductory text of paragraph (g) of this AD 

to determine if the serial number of the ECM, 

part number (P/N) 601–86100–27, is listed in 

Table 1 of Section 1.A. of the applicable 

service information listed in figure (1) to the 

introductory text of paragraph (g) of this AD. 

A review of maintenance records is also 

acceptable if the serial number of the ECM 

can be conclusively determined from that 

review. 

(1) If the serial number of the ECM is listed 

in Table 1 of Section 1.A. of the applicable 

service information or is not reidentified on 

the nameplate as SB–1, then the actions of 

paragraph (h) of this AD are required. 

(2) If the serial number of the ECM is not 

listed in Table 1 of Section 1.A. of the 

applicable service information or is 

reidentified on the nameplate as SB–1, then 

the actions of paragraph (h) of this AD are not 

required. 

(h) Replacement 

For airplanes identified in paragraph (g)(1) 

of this AD: Do the actions specified in 

paragraphs (h)(1) and (2) of this AD. 

(1) Within 24 months after the effective 

date of this AD: Replace the ECM, P/N 601– 

86100–27, identified in paragraph (g)(1) of 

this AD, in accordance with Section 2.C. Part 

B of the Accomplishment Instructions of the 

applicable service information listed in figure 

1 to the introductory text of paragraph (g) of 

this AD. 

(2) Prior to return to service, complete the 

operational test of the NWS system in 

accordance with Section 2.D. of the 

Accomplishment Instructions of the 

applicable service information listed in figure 

1 to the introductory text of paragraph (g) of 

this AD. 

(i) Parts Installation Limitation 

As of the effective date of this AD, it is 

prohibited to install ECM, P/N 601–86100– 

27, as a replacement part, if the serial number 

is listed in Table 1 of Section 1.A. of the 

applicable service information listed in figure 

1 to the introductory text of paragraph (g) of 

this AD, unless the ECM has been 

reidentified with SB–1 on the name plate. 

(j) Additional AD Provisions 

The following provisions also apply to this 

AD: 

(1) Alternative Methods of Compliance 

(AMOCs): The Manager, International 

Validation Branch, FAA, has the authority to 

approve AMOCs for this AD, if requested 

using the procedures found in 14 CFR 39.19. 

In accordance with 14 CFR 39.19, send your 

request to your principal inspector or 

responsible Flight Standards Office, as 

appropriate. If sending information directly 

to the manager, International Validation 

Branch, mail it to the address identified in 

paragraph (k)(2) of this AD or email to: 9-avsnyaco-cos@faa.gov. If mailing information, 

also submit information by email. Before 

using any approved AMOC, notify your 

appropriate principal inspector, or lacking a 

principal inspector, the manager of the 

responsible Flight Standards Office. 

(2) Contacting the Manufacturer: For any 

requirement in this AD to obtain instructions 

from a manufacturer, the instructions must 

be accomplished using a method approved 

by the Manager, International Validation 

Branch, FAA; or Transport Canada; or 

Bombardier, Inc.’s Transport Canada Design 

Approval Organization (DAO). If approved by 

the DAO, the approval must include the 

DAO-authorized signature. 

(k) Additional Information 

(1) Refer to Transport Canada AD CF– 

2023–14R1, dated May 15, 2023, for related 

information. This Transport Canada AD may 

be found in the AD docket at regulations.gov 

under Docket No. FAA–2023–2402. 

(2) For more information about this AD, 

contact Steven Dzierzynski, Aviation Safety 

Engineer, FAA, 1600 Stewart Avenue, Suite 

410, Westbury, NY 11590; phone: (516) 228– 

7300; email: 9-avs-nyaco-cos@faa.gov. 

(l) Material Incorporated by Reference 

(1) The Director of the Federal Register 

approved the incorporation by reference 

(IBR) of the service information listed in this 

paragraph under 5 U.S.C. 552(a) and 1 CFR 

part 51. 

(2) You must use this service information 

as applicable to do the actions required by 

this AD, unless this AD specifies otherwise. 

(i) Bombardier Service Bulletin 604–32– 

032, dated October 18, 2021. 

(ii) Bombardier Service Bulletin 605–32– 

009, dated October 18, 2021. 

(iii) Bombardier Service Bulletin 650–32– 

006, dated October 18, 2021. 

(3) For service information identified in 

this AD, contact Bombardier Business 

Aircraft Customer Response Center, 400 CoˆteVertu Road West, Dorval, Que ́bec H4S 1Y9, 

Canada; telephone 514–855–2999; email 

ac.yul@aero.bombardier.com; website 

bombardier.com. 

(4) You may view this service information 

at the FAA, Airworthiness Products Section, 

Operational Safety Branch, 2200 South 216th 

St., Des Moines, WA. For information on the 


khammond on DSKJM1Z7X2PROD with PROPOSALSEP28DE23.023</GPH>

Model Serial Numbers Applicable Bombardier Service Bulletin 

CL-600-2B16 6050 and subsequent 650-32-006, dated October 18, 2021 

CL-600-2B 16 5701 through 5990 605-32-009, dated October 18, 2021 

CL-600-2B16 5301 through 5665 604-32-032, dated October 18, 2021 
89636 Federal Register / Vol. 88, No. 248 / Thursday, December 28, 2023 / Proposed Rules 

availability of this material at the FAA, call 

206–231–3195. 

(5) You may view this material at the 

National Archives and Records 

Administration (NARA). For information on 

the availability of this material at NARA, 

visit www.archives.gov/federal-register/cfr/ 

ibr-locations or email fr.inspection@nara.gov. 

Issued on December 21, 2023. 

Caitlin Locke, 

Director, Compliance & Airworthiness 

Division, Aircraft Certification Service. 

[FR Doc. 2023–28590 Filed 12–27–23; 8:45 am] 

BILLING CODE 4910–13–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–121010–17] 

RIN 1545–BO11 

Bad Debt Deductions for Regulated 

Financial Companies and Members of 

Regulated Financial Groups 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: This document contains 

proposed regulations that would 

provide guidance regarding whether a 

debt instrument is worthless for Federal 

income tax purposes. The proposed 

regulations are necessary to update the 

standard for determining when a debt 

instrument held by a regulated financial 

company or a member of a regulated 

financial group will be conclusively 

presumed to be worthless. The proposed 

regulations will affect regulated 

financial companies and members of 

regulated financial groups that hold 

debt instruments. 

DATES: Written or electronic comments 

and requests for a public hearing must 

be received by February 26, 2024. 

ADDRESSES: Commenters are strongly 

encouraged to submit public comments 

electronically via the Federal 

eRulemaking Portal at https://

www.regulations.gov (indicate IRS and 

REG–121010–17) by following the 

online instructions for submitting 

comments. Requests for a public hearing 

must be submitted as prescribed in the 

‘‘Comments and Requests for a Public 

Hearing’’ section. Once submitted to the 

Federal eRulemaking Portal, comments 

cannot be edited or withdrawn. The 

Department of the Treasury (Treasury 

Department) and the IRS will publish 

for public availability any comments 

submitted to the IRS’s public docket. 

Send paper submissions to: 

CC:PA:01:PR (REG–121010–17), Room 

5203, Internal Revenue Service, P.O. 

Box 7604, Ben Franklin Station, 

Washington, DC 20044. 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, 

Stephanie D. Floyd at (202) 317–7053; 

concerning submissions of comments 

and requesting a hearing, Vivian Hayes 

at (202) 317–6901 (not toll-free 

numbers) or by email to 

publichearings@irs.gov (preferred). 

SUPPLEMENTARY INFORMATION: 

Background 

This document contains proposed 

amendments to the Income Tax 

Regulations (26 CFR part 1) under 

section 166 of the Internal Revenue 

Code (Code). These proposed 

amendments (proposed regulations) 

would update the standard in the 

current regulations under § 1.166–2 

(existing regulations) for determining 

when a debt instrument held by a 

regulated financial company or a 

member of a regulated financial group 

will be conclusively presumed to be 

worthless. 

1. Existing Rules 

Section 166(a)(1) provides that a 

deduction is allowed for any debt that 

becomes worthless within the taxable 

year. Section 166(a)(2) permits the 

Secretary of the Treasury or her delegate 

(Secretary) to allow a taxpayer to deduct 

a portion of a partially worthless debt 

that does not exceed the amount 

charged-off within the taxable year. The 

existing regulations do not define 

‘‘worthless.’’ In determining whether a 

debt is worthless in whole or in part, the 

IRS considers all pertinent evidence, 

including the value of any collateral 

securing the debt and the financial 

condition of the debtor. See § 1.166– 

2(a). The existing regulations provide 

further that, when the surrounding 

circumstances indicate that a debt is 

worthless and uncollectible and that 

legal action to enforce payment would 

in all probability not result in the 

satisfaction of execution on a judgment, 

legal action is not required in order to 

determine that the debt is worthless. See 

§ 1.166–2(b). 

The existing regulations provide two 

alternative conclusive presumptions of 

worthlessness for bad debt. First, 

§ 1.166–2(d)(1) generally provides that if 

a bank or other corporation subject to 

supervision by Federal authorities, or by 

State authorities maintaining 

substantially equivalent standards, 

charges off a debt in whole or in part, 

either (1) in obedience to the specific 

orders of such authorities, or (2) in 

accordance with the established policies 

of such authorities, and such authorities 

at the first audit subsequent to the 

charge-off confirm in writing that the 

charge-off would have been subject to 

specific orders, then the debt is 

conclusively presumed to have become 

worthless, in whole or in part, to the 

extent charged off during the taxable 

year. 

Second, § 1.166–2(d)(3) generally 

provides that a bank (but not other 

corporations) subject to supervision by 

Federal authorities, or by State 

authorities maintaining substantially 

equivalent standards, may elect to use a 

method of accounting that establishes a 

conclusive presumption of 

worthlessness for debts, provided the 

bank’s supervisory authority has made 

an express determination that the bank 

maintains and applies loan loss 

classification standards that are 

consistent with the regulatory standards 

of that supervisory authority. Section 

1.166–2(d)(1) and (3) are collectively 

referred to as the ‘‘Conclusive 

Presumption Regulations.’’ 

2. Generally Accepted Accounting 

Principles Prior to the Current Expected 

Credit Loss Revisions 

For financial reporting purposes, 

financial institutions in the United 

States follow the U.S. Generally 

Accepted Accounting Principles 

(GAAP) issued by the Financial 

Accounting Standards Board (FASB). 

The long-standing GAAP model for 

recognizing credit losses is referred to as 

the ‘‘incurred loss model’’ because it 

delays recognition of credit losses until 

it is probable that a loss has been 

incurred. Under the incurred loss 

model, an entity considers only past 

events and current conditions in 

measuring the incurred credit loss. This 

method does not require or allow the 

incorporation of economic forecasts, or 

consideration of industry cycles. The 

incurred loss model permits institutions 

to use various methods to estimate 

credit losses, including historical loss 

methods, roll-rate methods, and 

discounted cash flow methods. The 

GAAP accounting for credit losses has 

been revised with the introduction of 

the current expected credit loss 

methodology for estimating allowance 

for credit losses, as further described in 

section 3 of this Background. 

Under the GAAP incurred loss model, 

an institution must first assess whether 

a decline in fair value of a debt security 

below the amortized cost of the security 

is a temporary impairment or other than 

temporary impairment (OTTI). If an 

entity intends to sell the security or 

more likely than not will be required to 


khammond on DSKJM1Z7X2PROD with PROPOSALS