The American Bankers Association. American Financial Services Association and the Consumer Bankers Association represented half of the industry groups that sent a letter on Sunday to the Securities and Exchange Commission (SEC) to delay implementation of the Current Expected Credit Loss (CECL) accounting standards.
To recap, the Financial Accounting Standards Board (FASB) is looking to ensure that financial institutions have solid measures in place to ensure they have appropriate reserves for any future losses based on the life of each auto loan. As a result, the board instituted its new Current Expected Credit Loss model (CECL).
The new model will require higher levels of loan loss reserves and lead to changes in lending practices and portfolio management. It will also require a significant amount of data capture, analysis and modeling to meet the implementation deadline.
In light of the coronavirus pandemic, a total of six industry associations urged SEC chairman Jay Clayton to use his ability that ensures the pause to CECL implementation should remain in effect at least through 2023.
“In this moment of great uncertainty, America’s banks stand ready to support our customers, small businesses and companies in the communities that we serve. To best address these challenges we face today, banks must devote their full attention to their core business functions and be able to lend and meet their customer and community needs. To that end, we write in support of both proposed congressional legislation and the FDIC’s letter to the Financial Accounting Standards Board (FASB) that call for delaying the current expected credit loss (“CECL”) accounting standard and allowing banks now subject to CECL to opt out of the standard,” the associations’ letter began.
"COVID-19 has caused ‘sudden and significant changes in the economy over just the past several days and the uncertainty of future economic forecasts’ and all responses to it require flexibility because ‘the pandemic and rapidly evolving measures to confront these risks make certain allowance assessment factors potentially more speculative and less reliable at this time,’ according to the FDIC’s March 19 letter. The focus and efforts of banks, as it is for our government, should be targeted on supporting the economy and we should not be subject to incentives that constrain our ability to lend and help to restore our communities during these troubled times,” they went on to say in the letter.
Joining the American Bankers Association. American Financial Services Association and the Consumer Bankers Association in asking for the CECL delay were:
— CRE Finance Council
— Mid-Size Bank Coalition of America
— Mortgage Bankers Association