ABA yesterday hosted a six-hour private workshop with bankers, banking regulators, SEC, PCAOB, auditors and the Financial Accounting Standards Board devoted to resolving questions about FASB’s soon-to-be-final Current Expected Credit Loss standard. Working with a series of hypothetical scenarios, participants focused on the practical challenges that CECL presents, especially to smaller banks.
ABA has formally requested to host such a meeting several times since CECL was first proposed in 2012. The standard—which represents the biggest change in the history of bank accounting—requires life-of-loan forecast of credit losses to be recorded at origination. Many have raised concerns over the model’s dependency on long-term, forward-looking forecasts, as well as its workability for smaller institutions.
“With both the regulators and FASB promising that CECL will be scalable to banks, it was good to get everyone in the same room to try to work out whether it really can be workable,” said ABA SVP Donna Fisher. “Loan loss estimates are already complex, and there is no doubt that CECL will be more complex. It is now up to the regulators and FASB to determine whether the additional costs and complexity will be worth it for all institutions.”
ABA also noted during the meeting the need to focus on midsize bank implementation and whether there might be a bridge between how large and small banks implement CECL that might be beneficial for the midsize banks.
The final standard is expected to be issued in June, with an effective date of 2019 for SEC registrants and 2020 for all others. It remains unclear whether FASB will make any significant changes to the standard or to the effective dates prior to finalization. For more information, contact ABA’s Mike Gullette.