In a letter to Rep. Gregory Meeks (D-N.Y.) today, the American Bankers Association reiterated its call for a delay in the implementation of the current expected credit loss accounting standard until a quantitative impact study can be conducted and the full economic effects of CECL can be determined.
Citing figures recently compiled by ABA, the letter explained how CECL will have a procyclical effect, causing banks to hold higher loan loss reserves during times of economic stress and in turn drastically curbing the availability of credit. This would likely hit longer-term consumer loans—including 30-year mortgages—hardest, ABA said.
While the federal banking agencies have granted a three-year phase-in for the day-one capital effects of CECL, the association noted that it does not recognize the ongoing impact of CECL and would not provide relief from procyclical swings beyond the standard’s effective date. “That means there could be modest initial differences in allowances as of the effective date if the economic environment at the time is as benign as it is today,” ABA said. “However, if conditions later deteriorate and an update forecast requires lar loss provisions, the phase-in would do little to mitigate CECL’s negative impact.”