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Federal Regulators Back Small FI Accommodations In FASB Rule
WASHINGTON (6/4/13)--The Federal Financial Institutions Examination Council (FFIEC), which is comprised of federal bank regulators plus the National Credit Union Administration, sent a letter to the Financial Accounting Standards Board that supported proposed credit impairment recognition changes but encouraged modifications to the proposal for "small and less complex entities."

The joint agency letter was issued the same day as the separate Friday letter from the NCUA that urged FASB to strongly consider how proposed credit impairment recognition changes could impact small- and medium-sized credit unions, and their ability to serve members of modest means. The letter said the compliance costs that the proposal could create are a particular concern for the agency and that the NCUA also has safety and soundness concerns regarding the proposal.

The Credit Union National Association has also voiced concern on behalf of credit unions and strongly opposes the FASB rule, saying it not only would be detrimental to the credit union system, but also could have serious, unintended consequences for borrowers and the economy.

CUNA urged FASB to drop the proposal or, if that's not feasible, to work with the credit union system to develop credit loss reporting standards for credit unions, separate from those for publicly traded companies, that will reflect the unique business model of credit unions while ensuring credit loss issues are reported appropriately. 

The FFIEC letter supports FASB's controversial effort to move from an incurred loss model to an expected loss model for measuring impairment as a way to respond to "one of the lessons learned from the financial crisis."  The letter said the FASB changes would address the "too-little, too-late" criticism of loan loss allowances sparked by the crisis by replacing the "probable incurred loss threshold" with a practice of measuring losses expected at the balance sheet date.

However, the FFIEC agencies back applying the proposed principles to "all reporting entities," but in a manner that is "appropriate and practical for their circumstances."

The letter said, "...(S)maller entities and those with less complex financial asset portfolios may be able to achieve the objectives of the (current expected credit loss) model through estimation practices that are less burdensome and costly than those that may be used by larger and more complex entities.

To accommodate the resource constraints faced by smaller institutions, the proposed standard could be modified to include additional practical expedients that satisfy the intended measurement objective, a transition period that considers the time and effort necessary to implement the new model, and condensed disclosure requirements."


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