By Josh Stein
During a Jan. 15 oversight hearing in the House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets, lawmakers on both sides of the aisle expressed serious concerns about the economic effects of the Financial Accounting Standards Board’s current expected credit loss standard on the cost and availability of credit for consumers. During the hearing—at which FASB Chairman Russell Golden and PCAOB Chairman William Duhnke testified—lawmakers echoed many concerns raised by ABA in a statement submitted for the record, including that CECL could increase the volatility of bank regulatory capital and constrain lending in an economic downturn.
Lawmakers pressed Golden on FASB’s efforts to understand the broad impact CECL could have on the availability of credit on the economy as a whole. “Switching to CECL . . . will have significant real-world impacts on community banks, minority banks and other providers of credit and banking services,” said Rep. Gregory Meeks (D-N.Y.), warning that if banks curb lending as a result of CECL, it could create a ripple effect that could disproportionately affect low- to moderate-income borrowers.
Rep. Blaine Luetkemeyer (R-Mo.), an outspoken critic of CECL, emphasized that the standard could seriously affect consumers trying to achieve the American dream of homeownership, citing a study indicating that for every $1,000 increase to the cost of buying a home, 100,000 Americans would be priced out of a mortgage.
Many lawmakers raised concerns that FASB’s process in issuing the standard was inadequate. Rep. Vicente Gonzalez (D-Texas), who last year introduced an ABA-supported bill calling for an economic impact study of CECL, added that “the CECL standard leaves many questions unanswered, even for those who have already implemented it.”
FASB’s Golden told lawmakers that his organization will closely monitor and examine data from institutions already implementing the standard—as well as findings from a forthcoming Treasury study on CECL’s effect on regulatory capital—to understand if changes are needed to the standard ahead of the 2023 implementation deadline for smaller institutions. Golden pledged that if “there’s any recommendations that come out of the study, [FASB] will carefully implement those recommendations.”
He added that “we’re always open to improving our standards. . . . There will be a lot of information about the CECL rollout from the larger public companies that we can all review and study.”
Other things to note in the hearing include:
- Cindy Axne (D-Iowa) raised the issue of tax disclosures. Specifically, she expressed disappointment that FASB has dropped a country-by-country disclosure requirement in its latest proposal. She asked Golden to reconsider and he replied that deliberations are still in process and that it will be a topic of discussion in future meetings.
- Subcommittee Chairman Brad Sherman (D-Calif.) is passionate about R&D accounting and asked FASB to reconsider the requirement to expense.
- Sherman indicated a desire to hold additional hearings to further explore what he sees as insufficient oversight over FASB.
- The inability of the PCAOB to inspect audits of companies based in China was the primary focus of questions directed at PCAOB Chairman Duhnke. Members were generally sympathetic and sought to provide assistance to overcome the issue.
Josh Stein is vice president for accounting and financial management at ABA.