Removing Barriers Blog

FASB Responds to Congress on its Credit Impairment Proposal
Posted February 25, 2016 by CUNA Advocacy

Responding to a letter from lawmakers, FASB Chairman Russell Golden tried to allay the concerns of community banks and credit unions regarding FASB’s pending proposal on credit impairment. As we’ve reported, FASB is in the final stages of reviewing a proposed standard that would drastically change the accounting method for assessing credit impairment. The proposal, which is expected to be finalized next quarter, would require a forward-looking “current expected credit loss”—or CECL—model instead of the current “incurred loss” approach.

Together with the Independent Community Bankers of America (ICBA), we successfully encouraged 62 members of Congress to sign on to a January 29 letter by Representatives Tipton (R-CO) and Murphy (D-FL) to Chairman Golden, 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.

While we are still concerned with the unintended consequences of the proposal, we are somewhat encouraged by aspects of Golden’s response. Specifically, the letter states that, “These [proposed] changes make clear that a community bank or credit union will not be required to perform complex modeling or hire outside consultants. 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.” These remarks are consistent with those made by FASB and several banking regulators during a February 4 roundtable on the proposal.

Further, Golden stated that, “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. 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 we appreciate these comments, we are concerned that FASB’s position may not translate into the behavior of NCUA and other agencies’ examiners in the field.

We will continue to advocate for improvements to proposal and will keep you updated via this Removing Barriers Blog.