FASB responds to lawmakers' questions on CECL

March 1, 2016

WASHINGTON (3/1/16)--While the Credit Union National Association (CUNA) remains concerned with the unintended consequences of a current expected credit loss (CECL) proposal, it is somewhat encouraged by a recent response from the head of the Financial Accounting Standards Board (FASB). FASB Chair Russell Golden, in a letter, attempted to allay the concerns.

“These [proposed] changes make clear that a community bank or credit union will not be required to perform complex modeling or hire outside consultants,” Golden wrote. “To the contrary, these institutions will be able to use information that is available today, including their own direct, personal knowledge of their customers and local economic conditions.”

CUNA, along with the Independent Community Bankers of America, successfully encouraged 60 members of Congress to sign a letter in January urging FASB to pause its current work on the standard and thoroughly evaluate the potential harm the rule change may have on financial institutions’ ability to lend.

Golden’s letter was in response to the January letter from the members of Congress.

“The FASB is working with banking regulators to develop educational initiatives to inform all financial institutions (especially community banks and credit unions) about the new model’s flexibility as well as how they can leverage their existing processes,” Golden wrote. “Our collaboration with regulators on educational initiatives will also directly address other misunderstandings to allay concerns that the model requires community banks and credit unions to hire outside consultants to help them procure necessary data.”

While CUNA appreciates these comments, it remains concerned that FASB’s position may not translate into the behavior of examiners from the National Credit Union Administration and other agencies while in the field.

The CECL proposal, which is expected to be finalized next quarter, would require a forward-looking CECL model instead of the current “incurred loss” approach. This would have a dramatic impact on credit unions, primarily due to a change that would require them to hold much more in reserve for future possible loan losses.