Credit unions should take a page from community banks and make their voices heard on the Financial Accounting Standards Board's plan to change its rules related to accounting for loan losses that some suggest will result in a major hardship for credits unions and small banks.
The Independent Community Bankers of America is meeting with FASB Feb. 4 to discuss how the new rule will negatively impact community banks, and at least one credit union advocate thinks credit unions need to add their voices to this discussion.
Mary Dunn, a lawyer at Washington law firm CU Counsel and a former senior vice president and deputy general counsel at the Credit Union National Association, credited the ICBA with "continuing to weigh in" on the issue, while urging credit unions to do the same.
"Credit unions shouldn't give up," Dunn said in an interview. "It's not over. FASB doesn't seem to have been persuaded yet that certain institutions need to be treated differently."
And time may be running out. Following next month's meeting, FASB is expected to hold a public board meeting to discuss the pros and cons of issuing a final standard, which will include a summary of all the feedback received. A date for that session has not been set, according to FASB spokeswoman Christine Klimek.
Klimek confirmed FASB has agreed to meet on Feb. 4 with a delegation of community bank leaders, as well as auditors and regulators and said plans for a meeting have been in the works since December.
Bankers have grown increasingly vocal in their criticism of the proposed Current Expected Credit Loss, or CECL, standard, but James Kendrick, the ICBA's vice president for accounting and capital policy, said in an interview Friday that he appreciated the FASB's willingness to continue talking.
Still, Kendrick didn't mince words in criticizing CECL, calling it "the biggest accounting change we will see in our lifetimes," adding it would prove disastrous for smaller financial institutions.
CECL would be a major departure from current accounting, which lets institutions add to reserves only after losses become probable. In the aftermath of the financial crisis, FASB concluded that such an approach was reactive.
R. Harold Schroeder, a member of the FASB board, noted that banks were actually scaling back their reserves as late as 2006, just a year before the housing bubble burst and the Great Recession began. Though FASB officials insist otherwise, bankers are worried that they will be forced to use complex modeling to determine the early stage loan loss projections that would be required by CECL. While FASB might argue that CECL says nothing about complex modeling, it doesn't speak for bank auditors or examiners, Kendrick said.
"They're not going to give any latitude," Kendrick said. "They're going to require specific models with specific data inputs and none of that comes cheap. … There's no off-the-shelf product that banks can plug in."
Critics have also suggested CECL also fails to take into account the intangible, personal factors that credit unions and community bankers often rely upon in deciding to approve a loan.
Indeed, several credit union executives told Credit Union Journal last May that credit unions' bottom lines could wind up taking a big hit if FASB's proposal goes through.
"It will increase the costs for most credit unions making those calculations," said Jason Peach, CFO at West Community CU in O'Fallon, Mo. "It will probably also increase reserves for most institutions."
Sonya Jaynes, CFO at Red River CU, Texarkana, Texas, agreed, saying that while her credit union "already [has] a nice little allowance ready, our concern is that we're going to have to double that. And that comers right off the bottom line."
