Plenty of questions for credit unions following CECL delay

It's official.

The Financial Accounting Standards Board on Wednesday unanimously approved delaying implementation of its controversial Current Expected Credit Losses accounting standard until 2023 for most financial institutions.

The FASB initially proposed delaying CECL in July. Under the plan, banks that file with the Securities and Exchange Commission, except those defined as smaller reporting companies, will still need to convert to CECL, beginning Jan. 1. All other institutions, including private banks and credit unions, will have until 2023 to convert, giving those banks an extra two years and credit unions one more year to comply.

FASB Board Member Hal Schroeder said added time would give smaller lenders a crucial opportunity to learn from the experiences of larger institutions.

“When I’m out talking to smaller companies, it’s clear to me that ... it is difficult for them to see through all that cloud of dust, initially," Schroeder said. "It just takes them a little bit longer.”

“Allowing them time to make sure they have the appropriate education and implementation support is a plus,” Board Member Susan Cosper added.

One question that still remains is how the decision will impact credit unions. The industry as a whole has pushed for a delay, and Rodney Hood, chairman of the National Credit Union Admnistration, on Thursday praised FASB's decision, noting it could impact the credit union regulator's ongoing capital reform efforts.

“I am glad the Financial Accounting Standards Board chose the prudent course of delaying CECL until 2023. This will give more time for credit unions to implement the standard," Hood said in a statement. "The NCUA plans to phase in the capital impact of the new standard, which will provide relief to credit unions that could see large increases in their loan-loss reserves. We look forward to working with FASB to ensure credit unions get any necessary education and training assistance to implement the new standard.”

Mark McWatters, an NCUA board member and former chairman at the agency, argued earlier this month that CECL will impact credit unions' net worth ratios and increase operating costs, but said the regulator aims to play a part in reducing the burden where it can.

NCUA and three other regulators on Thursday released a policy statement aimed at easing implementation of the new standard.

'FASB still has time to do the right thing'

Still, the vote did little to ease pressure from banking and credit union groups that want a broader delay.

The American Bankers Association, which has called for CECL to be put on hold until what it terms a “rigorous quantitative impact study” can be completed to measure CECL’s effect on lending, called the vote a “missed opportunity.” The ABA is backing legislation introduced in both houses of Congress that would mandate a delay.

"FASB still has time to do the right thing and put CECL on pause for all companies until it can determine its impact,” ABA CEO Rob Nichols said in a Wednesday press release. “If FASB chooses to proceed over the objections of market participants, we urge lawmakers to quickly take up the bipartisan ‘Stop and Study’ bills in both the House and Senate to ensure the economy is spared the potential harm from a new accounting standard that carries too much unnecessary risk.”

Even with the added time, CECL "continues to be one of the biggest compliance challenges for credit unions,” Elizabeth Eurgubian, deputy chief advocacy officer and senior counsel at the Credit Union National Association, said in a Wednesday statement, adding that her group will continue to call for implementation support from FASB.

At last month's American Institute of Certified Public Accountants’ National Conference on Banks and Savings Institutions, FASB officials promised to work closely with banks, credit unions and regulators to make implementation as smooth as possible. Shayne Kuhaneck, the FASB’s acting technical director, said Wednesday that it has already held two outreach events, with three more planned before the end of this year.

Few new issues have been raised during those sessions, Kuhaneck said.

“There’re obviously questions, but people are asking questions that have already been answered,” he told FASB board members. “They just haven’t heard them.”

CECL will result in a sea change for loan-loss accounting, since it will require lenders to record all expected credit losses when a loan is booked, instead of waiting until credit deterioration becomes apparent. Critics have raised fears that the new standard would have a so-called pro-cyclical effect on lending, with institutions cutting back on lending as conditions worsen, potentially exacerbating the pain of economic slowdowns.

As reported, the credit union industry by and large is not prepared for the new standard.

So far, most banks have refrained from issuing forecasts of the day-one effects they expect the new standard to have on their loan-loss allowances, though there have been hints it may not be as pronounced has critics have feared.

Chuck Christmas, chief financial officer at Mercantile Bank in Grand Rapids, Mich., said on Tuesday that he didn’t expect to see a dramatic difference in the $3.7 billion-asset company’s allowance after Jan. 1.

“It doesn’t seem to us at the end of the day that switching to CECL is going to have a significant effect,” Christmas said during a quarterly conference call.

This story was updated at 1:22 P.M. ET on Oct. 17, 2019.