WASHINGTON (3/18/16)--Without simple, straightforward, but significant amendments, the Financial Accounting Standards Board’s (FASB) current expected credit loss model (CECL) will amplify risks and could result in significant economic suffering, the Credit Union National Association (CUNA) told FASB in a letter sent Thursday. CUNA and the Independent Community Bankers of America (ICBA) sent the letter to urge FASB to take into account the proposal’s impact on community financial institutions.
“Dramatic increases in loan loss allowances with no credible evidence of heightened risk and forceful adoption of modeling techniques is a sure path to stunt economic growth as community financial institutions are forced to severely limit or curtail a multitude of lending opportunities that promote economic growth,” the letter reads. “The end result is a significant reduction in credit extended, fewer homes being purchased, fewer small businesses being cultivated, fewer families being able to send a child to college, and overall economic malaise.”
“The effects are more greatly felt in rural and underserved communities, where local financial institutions are a pillar of strength when it comes to providing and expanding economic opportunity,” the letter adds.
The CECL proposal would utilize a single “expected loss” measurement for the recognition of credit losses, which would replace the multiple existing impairment models in U.S. generally accepted accounting principles that generally use an “incurred loss” approach.
In the letter, CUNA and ICBA highlighted several accommodations that should be made in the proposal, accommodations the organizations say are “crucial to avoid great economic damage to the nation.”
CUNA continues to be a strong advocate for changes in the CECL proposal. Last week it issued an action alert to allow stakeholders to send letters to FASB Chair Russell Golden, an effort that has resulted in more than 800 letters sent in less than a week.