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Home Community Banking

ABA to Congress: Delay CECL, Study Before Implementation

December 11, 2018
Reading Time: 1 min read

The projected effects of the Financial Accounting Standards Board’s Current Expected Credit Loss model for loan loss accounting are significant enough that FASB should delay CECL’s effective date and perform a quantitative impact study of the model, the American Bankers Association told the House Financial Services Committee in a statement for the record today. Scott Blackley, chief financial officer at Capital One Financial, and Bill Nelson, chief economist at the Bank Policy Institute, are among the witnesses at the hearing this afternoon.

ABA noted that by relying on notoriously unreliable economic forecasts, CECL will increase procyclicality and thus exacerbate economic downturns. To minimize this volatility, banks would need to keep more capital on hand — which would increase the cost of credit and reduce its availability, especially on longer-term loans. The nature of CECL’s projected effects would be felt more by community banks, ABA added, which have more long-term real estate loans.

“This is why the quantitative impact study must address not only the banking industry as a whole, but also how smaller institutions will be able to compete and serve their individual communities,” ABA said. “Due to the challenges in raising capital for many community banks, the study will allow regulators to assess whether the requirements could accelerate unintended consolidation in the industry.”

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