In light of the sudden and significant economic changes wrought by the coronavirus pandemic and public health response, FDIC Chairman Jelena McWilliams today asked the Financial Accounting Standards Board to allow banks that have begun implementing Current Expected Credit Loss methodology to postpone it, as well as to impose a CECL moratorium for banks not yet required to implement it.
“Banks may face higher-than-anticipated increases in credit risk allowances,” she explained. “Further, the growing economic uncertainties stemming from the pandemic and rapidly evolving measures to confront these risks make certain allowance assessment factors potentially more speculative and less reliable at this time.”
Meanwhile, with CECL implementation requiring a significant investment of both money and manpower, McWIlliams emphasized that “institutions under current conditions need to apply their full efforts, focus and resources toward working to ensure the safety of the staff, customers and local communities.”
American Bankers Association President and CEO Rob Nichols welcomed McWilliams’ letter. “ABA has long called for delaying CECL until a quantitative impact study can be conducted to better understand how it might impact credit availability during periods of economic stress,” he said. “With economic stress now here thanks to COVID-19, it is critically important that banks of all sizes have all the tools they need to lend to creditworthy individuals and businesses.”
In light of industry guidance to work with borrowers, McWilliams also called for FASB to exclude all coronavirus-related loan modifications from being considered a concession for purposes of classifying a troubled debt restructuring.