Many are calling CECL the most significant change in accounting rules to hit the financial services industry in decades. The CECL standard will lead to increased compliance costs – both in dollars and staff time – that many credit unions cannot afford. NAFCU has conducted studies and provides numerous resources for its credit union members as the CECL implementation deadline draws nearer.
NAFCU is committed to making its members’ concerns heard before FASB, the NCUA, other relevant regulators, and even Congress.
- In July 2019, NAFCU wrote to the House Financial Services Committee in support of H.R. 3182, the CECL Consumer Impact and Study Bill.
- In June 2019, NAFCU met with lawmakers on Capitol Hill to discuss concerns about credit unions’ unique capital framework, which limits the NCUA’s ability to mitigate CECL’s effect on institutions’ net worth without action from FASB.
- In May 2019, NAFCU met with NCUA’s Office of Examination and Insurance to discuss credit union concerns with CECL and gain a better understanding of the NCUA’s approach to CECL examination.
- In April 2019, NAFCU met with NCUA Board Member Todd Harper and discussed credit union concerns with CECL, as well as the need for CECL guidance and education from the NCUA.
- In February 2019, NAFCU wrote to FASB asking for CECL relief for credit unions because credit unions have a unique capital framework and face certain regulatory constraints.
- NAFCU wrote to the NCUA, detailing NAFCU’s work to help credit unions and asking the agency to work closely with FASB to provide more resources for credit unions.
- NAFCU has met with the Federal Reserve to reiterate credit union concerns with CECL.
- NAFCU wrote to Treasury Secretary Mnuchin ahead of a meeting of the Financial Stability Oversight Council (FSOC), asking the FSOC to consider the implications of CECL and delay implementation.
- Ahead of a recent Congressional hearing on the impact of CECL, NAFCU called for Congress to exempt credit unions from CECL.
FASB historically has been reluctant to create exemptions from its accounting standards. At this time, CECL will go into effect for both banks and credit unions. Nevertheless, as a result of NAFCU's efforts, some flexibility in the standard has been achieved: FASB issued a in November 2018 to clarify the effective date for its CECL standard, making clear that credit unions would not need to begin reporting data on call reports until the beginning of 2022. The update also clarified that operating lease receivables are not covered within the scope of CECL – a clarification welcomed by NAFCU. In July 2019, FASB issued a NAFCU-sought proposal that would delay implementation of CECL for credit unions by an additional year, until 2023. NAFCU will submit comments in support of the proposal.
In April 2019, FASB issued an update with CECL amendments related to measurement and presentation of available for sale debt securities within the scope of CECL. The update also clarified guidance related to when an entity should include recoveries when estimating the allowance for credit losses. Also in April 2019, FASB announced that it would not move forward with a proposal put forward by a group of banks outlining an alternative to the income statement impact of the standard that would have provided institutions with additional flexibility. NAFCU remains engaged in evaluating any proposals that emerge and will work with the NCUA and FASB to determine whether these alternatives could help alleviate some of the negative impacts of the CECL standard.
In May 2019, FASB issued an update aimed at easing the transition to CECL by simplifying measurement practices. Credit unions will no longer have to use dual measurement methods for certain financial instruments that are similar. In June 2019, FASB issued a proposed accounting standards update that would make a technical correction to CECL to permit organizations to record negative allowances on purchased financial assets with credit deterioration – an issue raised during a recent stakeholder meeting.
Financial regulators, including the NCUA, released a new CECL FAQ document to help institutions implement the standard, and held an “Ask the Regulators” webinar to address implementation concerns. The NCUA has also released a CECL Exam Questionnaire that the agency will be using during upcoming exams in 2019. Furthermore, the banking regulators recently announced the option to phase-in over a three-year period the day-one effects of the CECL standard on regulatory capital. NAFCU will advocate for parity for credit unions in all beneficial changes regarding the implementation of the CECL standard.
Congress is also concerned about the impact CECL will have on financial institutions and the economy at large. When NCUA Chairman Rodney Hood testified before the House Financial Services Committee in May 2019, lawmakers from both sides of the aisle expressed concerns with the potential impact CECL will have on lending and smaller institutions’ operations. In May 2019, a group of Senators introduced a CECL “stop and study” bill that would require FASB to work with financial regulators to review CECL’s impact and report the findings to Congress. Financial institutions would not be required to comply with the standard until one year after the report is submitted to Congress. In June 2019, a bipartisan group of members of the House of Representatives followed suit and introduced similar legislation.