In an op-ed published today in The Washington Times, industry veterans William Isaac, former chairman of the FDIC and Thomas Vartanian, former general counsel of the Federal Home Loan Bank Board, warned of the dire consequences that could result from a hasty implementation of the current expected credit loss accounting standard.
Harkening back to the Financial Accounting Standards Board’s 2008 activation of untested mark-to-market accounting rules—and their disastrous effects—the authors urged FASB and the Securities Exchange Commission to learn from past mistakes. Of particular concern is the procyclical nature of CECL and its potential effects during an economic downturn—a concern that ABA has repeatedly raised to lawmakers and regulators.
The authors also pointed to a lack of due process in FASB’s rush to implement the standard without sufficient study. They expressed support for recent proposed legislation to stop and study CECL. “We suggest that this study first assess whether there is still a need for CECL, particularly in view of recent changes FASB has made to loan loss accounting.”
FASB recently announced that it would delay implementation of CECL for certain companies, but made no provision for an impact study.