A group of House lawmakers yesterday wrote to the heads of the Securities and Exchange Commission and the Financial Accounting Standards board urging them to more closely examine the effects of FASB’s Current Expected Credit Loss Standard on credit availability and calling for a delay to CECL’s effective date until such a study can be carried out. The standard is set to take effect in 2020 for SEC registrants and 2021 for all other banks.
The lawmakers expressed concerns that CECL — which requires “life of loan” estimates of losses to be recorded for unimpaired loans at origination or purchase — could negatively affect the cost and availability of credit and contribute to greater volatility in banks’ balance sheets. “By requiring financial institutions to immediately recognize the entire expected life-of-loan credit loss and forcing them to immediately post reserves for that expected loss, CECL could result in fewer options for consumers and more instability in the lending market,” they wrote.
Any study conducted on the standard should not only assess CECL’s effect on credit availability, but also how it will affect regulatory capital requirements, the lawmakers added.