5.16.19
Written by Neal Haggerty for American Banker on May 16, 2019.
At last week’s House Financial Services Committee with prudential regulators, members of both parties launched criticism against the Financial Accounting Standard Board’s Current Expected Credit Loss (CECL) standard. CECL, issued by the Financial Accounting Standard Board in 2016, would replace the Allowance for Loan and Lease Losses (ALLL), the current reserve used to reflect credit losses of domestic financial institutions. CECL reflects a more conservative accounting standard, shifting focus from incurred losses to expected losses estimated over the entire life of a loan. The Standard Board has mandated that all publicly traded banks must convert to this new model by January 1st, 2020; private banks will have until 2022.
House members called for a delay in the implementation of CECL, criticizing the Board’s imprudence. “Financial institutions across this nation are facing the most significant accounting change in decades,” said Rep. Blain Luetkemeyer (R-MO), “. . . delay implementation until you all have thoroughly studied CECL and understand the consequences.” Many were critical of the unprecedented obstacles community and minority banks could face at the hands of the new standard. “We need to put a stop, a stop right now on FASB’s ruling,” Rep. David Scott (D-GA) told the committee. “This ruling is absolutely devastating to our smaller banks . . . and our credit unions.”
Credit unions and smaller financial institutions often have sporadic, unpredictable patterns of loss in their low quantity loan portfolios. CECL would pose unique challenges to low-capital institutions with a history of incurred loss reporting. Some Democratic members on the committee have proposed legislative action that would stop CECL implementation altogether.
Democratic lawmakers’ concerns were echoed by hearing regulators, all of whom were appointed by President Trump. “I have made it a point to go to different states and meet with bankers, and I have to tell you, the first question that comes out of these meetings from community bankers . . . is CECL and their concerns,” regulator McWilliams told the Standard Board. The hearing offered a rare moment of bipartisan advocacy, as committee regulators typically face strong pushback from the Democratic house on their deregulatory agenda.
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