Efforts by the Financial Accounting Standards Board to placate the concerns of community financial institutions about its new loan loss accounting standard, known as CECL, have fallen far short of what is needed to justify the costs of the new standard, ABA VP Mike Gullette said today.
Despite positive comments from some after FASB’s transition resource group met on Friday, Gullette warned that a key community banking example included in FASB’s most recent version of CECL can be widely misunderstood and would likely be applied in the example’s simplistic form only in rare circumstances.
“While FASB’s revised draft offers more clarity than the original, the devil is in the details,” he said. “Community banks will be required in real life to build and maintain data warehouses to support CECL estimates. That hasn’t changed, and significantly more detailed analysis — vastly different than that performed today — will be needed than is pictured in the examples. That hasn’t changed either. From a cost-benefit point of view, this still doesn’t work.”
ABA will continue its efforts with FASB and the regulatory agencies to ensure that a robust cost-benefit review of the forthcoming CECL standard is performed before it is imposed on banks and credit unions. CECL — which represents the biggest change in the history of bank accounting — requires life-of-loan forecasts of credit losses to be recorded at origination. ABA and many others have raised concerns over the model’s dependency on long-term, forward-looking forecasts, as well as its workability for smaller institutions.