The Financial Accounting Standards Board’s current expected credit loss model for loan loss accounting is a solution in search of a problem, according to an op-ed by Brice Luetkemeyer in American Banker today. Luetkemeyer is president and CEO of the Bank of St. Elizabeth, an ABA member in St. Elizabeth, Mo.
Luetkemeyer challenged FASB’s assertions that CECL will provide more information to investors, citing a survey showing that three-quarters of bank investors oppose CECL—not to mention that most U.S. banks are privately held, making a standard designed for institutions traded on public markets particularly inappropriate.
Moreover, he argued, CECL imposes substantial costs to achieve little to no improvement in reserving. “Today, the examiners require bankers to properly justify their reserves, as they should,” Luetkemeyer wrote. “The current process and reserve levels have improved significantly and are working quite well, even prior to CECL’s implementation.”