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FASB discusses CECL implementation with FIs, regulators
A representative from NAFCU-member Mission Federal Credit Union Thursday shared the credit union perspective during the Financial Accounting Standards Board (FASB) roundtable on the current expected credit loss (CECL) standard. Representatives from several financial institutions that have already adopted the standard were also present.
During the discussion, roundtable participants noted challenges with standardization in preparer disclosures and lack of comparability between macroeconomic assumptions and reasonable and supportable forecast periods, among other things, which sometimes frustrated the process of peer benchmarking.
Several private analysts present during the roundtable suggested that the CECL standard allowed banks increased their reserves for expected credit losses more quickly. However, it was also observed that the incurred loss methodology permitted a similar build-up through adjustments to qualitative and environmental factors.
Roundtable participants briefly discussed the interplay of CECL and the coronavirus pandemic, remarking upon certain challenges faced by smaller financial institutions during a period of stress and how prepares addressed unprecedent government interventions in the economy. For community institutions who have not yet implemented CECL, including credit unions, FASB staff shared materials indicating that these groups would appreciate a simplified approach to developing a reserve under CECL to ease implementation burdens.
One roundtable participant noted that the process of CECL adoption for financial institutions under $10 billion in assets and was more costly and complex than anticipated. FASB included more information on this topic in the official meeting handout. As the CECL standard is set to take effect for credit unions in 2023, NAFCU continues to urge FASB to grant credit unions an exemption given their unique structure and potential impacts on capital and net worth classifications.
On the topic of troubled debt restructurings (TDRs), FASB received feedback prior to the roundtable that indicated the cost of TDR accounting for CECL adopters and generating the required disclosures for TDRs may not justify the benefits.
FASB staff noted challenges associated with determining whether a modification is in fact a TDR and that certain modification disclosure improvements may be better alternatives to TDR designation; however, there could be a tradeoff in terms of replacing the complexity of TDR accounting with greater complexity in modification accounting.
CECL was included as a priority issue for the NCUA to address in a letter sent this week by NAFCU President and CEO Dan Berger. The agency has proposed a three-year phase in of the day-one adverse impacts of CECL on federally-insured credit unions' net worth ratios, though NAFCU has advocated for a longer phase-in option and additional examination flexibility. In its 2021 supervisory priorities, the NCUA announced that examiners "will not be assessing credit unions' efforts to transition to the CECL standard until further notice" amid the coronavirus pandemic and temporary delay of the standards implementation.
The association will continue to share with NCUA, FASB, Congress, and other stakeholders the impact CECL is having on credit unions and push for an exemption and additional relief to reduce regulatory burdens.