ABA to FASB: Subject CECL to Strong Cost-Benefit Test, Delay Implementation

Summarizing the complexity within key aspects of the Financial Accounting Standards Board’s Current Expected Credit Loss model for loan impairment accounting, ABA today called on FASB to perform a public and transparent cost-benefit analysis before the final CECL standard is issued and to consider “realistic” implementation approaches banks will use rather than minimum specific requirements.

Among the key cost issues, ABA cited needs for significantly more data, more sophisticated forecasting capabilities, massive education to address inconsistencies in reported credit metrics and increased auditing expenses. ABA also advised FASB that the incremental benefits of the proposed standard should be compared to the actual forward-looking practice that many banks have used for years.

FASB has indicated that it will address costs and benefits during a public meeting held at the end of April, and it is currently planning to issue a final standard by the end of June. FASB had previously announced that the effective date for CECL would be 2019 for SEC registrants and 2020 for all other institutions.

In its letter, ABA recommended that — if CECL passes the cost-benefit test — SEC-registrants be given another year, due to the delays in issuing the standard. ABA also requested two years after the SEC effective date for non-SEC registrants, making the effective date 2022 for those banks. The extra year would enable a better resolution of the data needs banks will have and the methods they will initially use prior to making significant investments in systems changes.