WASHINGTON (2/1/16)--As a result of concerns raised by the Credit Union National Association (CUNA) and others in the financial services industry, the Financial Accounting Standards Board (FASB) is holding a roundtable Thursday to discuss the impact of pending changes to its rules on the current expected credit loss standard (CECL).
CUNA will be represented at the meeting at FASB headquarters in Connecticut by Luke Martone, senior director of advocacy and counsel. It will be the third meeting CUNA has had with FASB to discuss the proposal.
The reforms would require credit unions and other financial institutions to estimate expected credit losses for the life of a financial instrument and recognize the net present-value of those losses at the moment of origination.
CUNA has called this a "stark departure" from current rules that require financial institutions to recognize credit losses when there is evidence they will actually incur a default.
CUNA is very concerned about the impact to credit unions’ allowance accounts. CUNA warns that a higher level of reserves will contract credit that fuels consumer purchasing and business expansion. Loans with higher expected losses will be more expensive for a lender.
CUNA also warns that, as written, the FASB plan will impose damaging costs on credit unions and other small lenders. It recommends a tiered implementation noting that approaches appropriate for a large lender with ample investment in technology and economic forecasting may not be appropriate for smaller lenders with smaller overall risk profiles, such as credit unions.
CUNA filed a comment letter in May 2013, followed by letters in 2014 and 2015 to FASB. CUNA has also reached out to Congress and the NCUA. (See related story: 62 lawmakers sign on to CUNA-supported letter to FASB.)
FASB has been working on this proposal since December 2012. It is expected to finalize the rule in the first half of this year.