Federal financial institution regulators are likely to advise privately held banks, credit unions and others that they have one more year to comply with new “current expected credit loss” (CECL) accounting standards following a proposal Wednesday by the financial accounting standards-setting group.
The Financial Accounting Standards Board (FASB) voted to propose providing credit unions, privately held banks, and other smaller entities a one-year extension – to January 2023 – for complying with the CECL standards.
The board had previously extended the compliance date to 2022 just last fall (a one-year extension from the previous date). The proposal will be subject to a 30-day public comment period by the FASB, following the board’s procedure.
However, given the outcry over compliance from a number of organizations and financial institutions about complying with the standard – which is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations – it’s likely the extension will be applied.
Political pressure has also been building over compliance with the accounting standard. Also Wednesday, moments before the FASB voted, Rep. Blaine Luetkemeyer, R-Mo. and ranking member of the House Financial Institutions Subcommittee, said at the start of a hearing that “it’s irresponsible to blindly implement CECL before the economic effects are fully understood.” Luetkemeyer noted that he had joined a bipartisan group of House members supporting legislation (H.R. 3182) to “stop and study” the CECL standard’s impact on smaller institutions.
During the FASB meeting Wednesday, Board Member Hal Schroeder noted that smaller organizations are capable of compliance with CECL by 2022, but it would be “a compliance exercise.” He added that, in order to comply with CECL “in a thoughtful manner,” credit unions, privately held banks and others need more time. “To me, that’s the winning argument,” he said.
Regulators have followed closely the development of the rule since its adoption in 2016, and various compliance date extensions since then. In April, the federal banking agencies and the National Credit Union Administration (NCUA) jointly published a list of “frequently asked questions” about the accounting standard – the third such set of FAQs published since the rule’s adoption nearly three years ago.