A bipartisan group of senators yesterday urged Treasury Secretary Steven Mnuchin to direct the Financial Stability Oversight Council to conduct a study on the current expected credit loss accounting standard’s effect on lending and the economy. The senators raised concerns about the procyclical nature of CECL and the way in which it constrains credit availability, particularly during the current economic downturn due to COVID-19.
“The reserves for the 200 largest banks, which have community, state, regional, and national footprints, increased by nearly 60% at the end of the first quarter compared to the quarter ending 2019, representing billions of dollars of capital that has been taken out of the system during a moment when it is most needed,” they noted. “Now is the optimal time to assess CECL’s economic impact, including how the policy affects products and lending decisions of financial institutions, and especially the consequences on customers in low-to-moderate income communities.”
The senators recommend that FSOC study current macroeconomic data, rather than relying on “speculation and models,” and complete a report by 2021.