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Fitch: US banks can deal with new credit-loss rules

Fitch Ratingson July 20 said it believes that while U.S. banks' reserving practices will be affectedby the Financial Accounting Standards Board's new standard on accounting for creditlosses on financial instruments, the effects will be manageable.

According tothe rating agency, banks will have ample time to prepare for the implementationof the rules, which will require the estimate of credit losses for loans and debtinstruments, financial guarantees and non-cancelable loan commitments and disclosureof credit quality indicators by vintage year.

Compared tothe present current "incurred loss" model, Fitch said that higher reservesfor credit losses are expected once institutions use the new "current expectedcredit loss" model. Should the new model be applied in the present, the ratingagency projects a $50 billion to $100 billion jump in loan loss reserves, with theU.S. banking system in aggregate estimated to see a 25- to 50-basis-point hit totangible common equity ratios.