Credit unions don’t have to start complying with FASB’s current expected current loss (CECL) model until the year beginning after December 15, 2021 but believe it or not the clock is running and for smaller banks and credit unions CECL is emerging as the top regulatory issue for credit unions. Simply put, just as credit unions and community banks for that matter, should be preparing for the new accounting standard right now, NCUA should be providing accounting guidance, yes accounting guidance, explaining what methods for calculating the expected losses on a credit union’s loan portfolio will be acceptable.
Here is the problem. While I continue to believe that CECL makes sense provided it is implemented in a way which allows for a $50 million credit union to anticipate its expected loan losses in a less sophisticated way than a $10 billion credit union or a $250 billion bank holding company, this only works if the regulators and the Federal Accounting Standards Board start issuing guidance on proper accounting standards. Like it or not, NCUA is now in the accounting business and its time for it to provide appropriate assistance to credit unions preparing to implement these new requirements.
Recently, the American Bankers Association sounded the alarm when it issued this white paper complaining that one suggested method for complying with CECL is actually not adequate to comply with CECL. It explained that “While non-complex banks may be allowed to utilize less complex models, life of loan credit risk analysis is not easy and smaller banks and credit unions are waiting on regulators and FASB to tell them how to proceed. In the two-and-a-half years since the CECL standard has been issued, the only guidance from FASB or the banking agencies to community banks has been to say that the questionable WARM method “may be an appropriate method.”
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