FASB unanimously approves CECL delay for most lenders

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.

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 a “rigorous quantitative impact study” can be completed to measure CECL’s impaect 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 Chief Executive 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, 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 procyclical effect on lending, with institutions cutting back on lending as conditions worsen, potentially exacerbating the pain of economic slowdowns.

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.