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June 19, 2019

Bipartisan effort to delay implementation of CECL methodology

US Congressman Vicente Gonzalez has introduced a bipartisan bill to delay the implementation of CECL (current expected credit loss) while cost-benefit studies are done to explain the impact on certain kinds of business.

The Financial Accounting Standards Board (FASB) update to the accounting standards for credit losses that included the CECL methodology is set to go into effect shortly. The standard replaces the existing incurred loss methodology for certain financial assets.  The new accounting standard will apply to all banks, savings associations, credit unions and financial institution holding companies, regardless of size, that file reports which conform to US generally accepted accounting principles (GAAP).

“CECL affects a very broad part of our business sector who engage in lending, big and small,” Congressman Gonzalez said. “But those effects are not known and they too could be big or small. My concern is that we have paid too much attention to the largest entities and not enough to the smallest, where a $10,000 compliance bill just to learn whether you do or do not need to change your business plan, is just too much for some to absorb.”

 “I never knew when I took office that the implementation of accounting standards would prove to be such an important issue, yet I’ve been pleased to see it provide so many opportunities for working across the aisle in this hyper-partisan era. The Financial Accounting Standards Board, or FASB, is moving forward with an accounting standard affecting generally every financial institution in the country and the customers they serve, without a proper study of its broader economic impact,” said Congressman Ted Budd.

The bipartisan legislation has been welcomed by representatives of the American Bankers Association, the National Association of Federally-Insured Credit Unions and the Credit Union National Association.

However, writing in The American Banker, George Mason University Antonin Scalia Law School associate professor and Veritas Financial Analytics LLC manager J.W. Verret said: “The particular debate about this new standard regarding current expected loan losses, or CECL, is less important than the harmful precedent that congressional involvement in accounting standard-setting would engender. This legislation is a very dangerous idea, as it would set a precedent for future politicization of the financial reporting process.”

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