Appearing before the House Financial Services Committee this week, Federal Reserve Board Chairman Jerome Powell discussed the implementation of the Financial Accounting Standards Board’s current expected credit loss (CECL) standard for banks and financial institutions.
“We’re doing everything we can to avoid a big change that’s disruptive to lending,” Powell said during his semiannual Monetary Policy Report to Congress, reported the American Bankers Association’s (ABA) Banking Journal. “We’ve tried to work with banks so that they’ll be able to implement this FASB decision in ways that are not too disruptive and too expensive and too complicated.”
FASB’s new current expected credit loss (CECL) model – which goes into effect Dec. 19, 2019 — marks a shift in the way credit losses on loans and financial assets are recorded. The CECL applies to all banks, savings associations, credit unions and financial institution holding companies. The CECL will impact financial institutions internal accounting policies and procedures and may impact how they manage capital.
Powell told the committee that banks will be allowed to phase the new standard in over a three-year period.
ABA has raised concerns that the phase-in does not go far enough to ensure CECL will function as intended. The organization also said the implementation could cause adverse effects on regulatory capital, particularly in the event of an economic downturn.
ABA has called for a quantitative impact study that would examine the effect of CECL throughout a credit cycle, including the impact on credit availability and procyclicality, among other things.
Powell did not comment specifically on whether a quantitative impact study on the standard would be useful, but he does not expect the standard to have a procyclical effect, according to ABA.