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The banking group, already irate over a plan to drastically change the timing of loan-loss provisions, is blasting remarks by FASB Chairman Russell Golden linking community banks to the financial crisis. FASB, meanwhile, said the comments were meant to be a criticism of current credit loss models not banks.
December 29 -
A long-expected change to the rules for provisioning against bad loans is coming soon, and opponents are going on the offensive, arguing that it is impractical and would be especially hard for small banks to comply with. But few concessions, if any, are predicted.
September 29 -
The Financial Accounting Standards Board's proposal to start loss reserves when a loan is originated is antithetical to banks making localized financial decisions.
November 9
In the book "The Big Short" — an account of the 2008 financial crisis that is now a major film — a pioneer of subprime mortgage securities describes the business as one "where you can sell a product and make money without having to worry how the product performs." This root cause of the worst economic collapse since the Great Depression is in direct contrast with community banking, in which local bankers are held personally accountable to the customers with whom they live, work and worship.
So community bankers were justifiably troubled to hear that Financial Accounting Standards Board Chairman Russell Golden recently
There are many flaws with this argument. The financial crisis indeed took a toll on many community banks and other small businesses, but the crisis was largely caused by the risky practices of unregulated mortgage lenders and the packaging of bad loans by Wall Street firms. In fact, most community banks fared well, by comparison, during the crisis because of their personalized, relationship-based business model. While the too-big-to-fail megabanks pulled back their lending in many parts of the country, the too-small-to-save community banks continued providing much-needed credit to keep their local economies afloat.
Golden's inaccurate comments raise questions about FASB's ability to set independently financial accounting standards. Blaming community banks for the crisis is like blaming Poland for World War II. It shows either a misunderstanding of our financial system or a disdain for local financial institutions, either of which would be damning to FASB's credibility.
His remarks also revealed a major disconnect between his organization and the federal banking regulators that will ultimately implement FASB's standards. Despite Golden's claims that the update will not require complex modeling software and strict regulatory oversight — changes that would
As the Independent Community Bankers of America outlined in a recent
FASB is already familiar with our proposal; we've been pitching it for years. But if Golden and the rest of the standards-setters need more background, they should visit their nearest cinema to brush up on what really happened in 2008. I hear "The Big Short" is getting good reviews.
Camden R. Fine is president and CEO of the Independent Community Bankers of America.