December 17, 2019

NAFCU to NCUA: More guidance needed to alleviate CECL burdens

Commenting on federal financial regulators' proposed interagency policy statement for the current expected credit loss (CECL) standard, NAFCU's Andrew Morris said the proposal "does little to alleviate the future cost, disruption, and uncertainty associated with the most significant accounting change in decades."

Morris, NAFCU's senior counsel for research and policy, provided feedback on the proposed policy statement on allowances for credit losses (ACLs) to the NCUA directly. NAFCU maintains that credit unions should not be subject to CECL due to the negative impact it will have on institutions' capital, and continues to ask the Financial Accounting Standards Board (FASB) to consider less burdensome alternatives for the industry and work with the NCUA to provide more resources for credit unions.

The NCUA's fall rulemaking agenda indicates a proposed rule early next year that is expected to adopt a phase-in of CECL's negative impact on credit union net worth ratios.

In the letter, Morris acknowledged that the proposed statement does "modestly [improve] understanding of supervisory expectations surrounding implementation of [CECL]." However, he specifically requested "the NCUA develop its own, tailored guidance for credit unions to clearly communicate examiner expectations well in advance of CECL's 2023 compliance date."

In addition, Morris recommended the proposed policy statement should:

  • include practical examples to illustrate how credit unions can comply with CECL using simplified models; and
  • clarify that deference to managerial judgment encompasses the decision to rely on independent auditors to validate ACL measurement.

Read Morris' full detailed recommendations here.

NAFCU for years has shared credit unions' concerns about the negative impacts of the CECL standard to FASB. In October, the industry received a big win as FASB approved the drafting of a final accounting standards update to delay CECL by an additional year. That delay became official in November, pushing the implementation deadline to 2023 for not-for-profits, including credit unions. 

The association has numerous resources available to credit unions as they prepare to implement the standard. This is just one of the issues that will be addressed during NAFCU's Q4 Member Call-In tomorrow.