Rep. Kustoff Flags Technical Complication with SEC Interpretation of CECL Delay

In a letter to SEC Chairman Jay Clayton this week, Rep. David Kustoff (R-Tenn.) urged the agency to rethink its approach to implementing the temporary delay of the current expected credit loss standard that was included in the CARES Act. The provision gave institutions an option to delay CECL implementation until the end of the public health emergency or the end of the year, whichever comes first.

“According to the SEC’s interpretation, the December 31, 2020 (or earlier) termination date of the delay requires a quarterly ‘catch-up’ of January 1, 2020, and quarterly estimates,” Kustoff explained. “Therefore, any capital relief offered by the banking agencies will apply only to beginning (January 1) balances, rather than what might be available during a mid-2020 option. Based on this updated regulatory capital relief proposal, banks that elect to delay CECL will apparently forego a portion of the regulatory capital relief that is proposed.”

Kustoff argued that the decision to delay and later adopt CECL should not be a one-time decision, and urged SEC to clarify that the Dec. 31 end date of the delay be interpreted as Jan. 1 in order to give institutions a true one-year delay of CECL implementation, as Congress intended. Finally, Kustoff called for clarity on “how mid-year adoptions of accounting standards can work” during the national emergency.