NEW: Early CECL revisions make proposal more flexible for CUs

April 1, 2016

NORWALK, Conn. (4/1/16 UPDATED 5:55 p.m. ET)--Revisions to the current expected credit loss (CECL) proposal include progress toward making the rule more palatable for credit unions and smaller financial institutions, as discussed at the first public meeting of the CECL resources group today. FASB will be meeting at the end of April to review a cost-benefit of the proposed standard, and to make a final vote. It expects to finalize the proposal by June 30.

The Financial Accounting Standards Board (FASB) put the group together last month, a group that has two Credit Union National Association (CUNA) members. CUNA also issued an action alert on the proposal, resulting on 975 letters sent to FASB outlining those concerns.

Susan Hannigan, senior vice president/chief financial officer at Jeanne D’Arc CU, Lowell, Mass., and Doug Wright, chief financial officer at Mission FCU, San Diego, are members of the group.

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.

The revised language makes the proposal more flexible, stating that there is no one methodology that has to be used. The board’s intent is that each institution needs to apply the method that is appropriate for its portfolio based on the knowledge of their business and processes.

By allowing community banks to evaluate and adjust their loan-loss amounts using qualitative factors, historical losses, and current systems, such as spreadsheets and narratives, FASB has made important changes to its proposed accounting standard.

Hannigan told News Now Friday that the revisions are “progress toward a workable solution.”

Credit unions expressed a number of concerns about the first version of the proposal, including potential significant consequences on lending and requirements to hold additional capital.