What’s new with CECL?
Here at NAFCU, we have been monitoring the Financial Accounting Standards Board’s (FASB) efforts to address implementation issues related to the current expected credit loss (CECL) standard. Here are some recent developments the credit union industry should be aware of.
CECL’s impact
The CECL standard will affect credit union capital and reserves for expected losses, necessitate development of new forecasts, and ultimately lead to increased compliance costs – both in dollars and staff time – that many credit unions cannot afford.
We maintain that credit unions should not be subject to CECL because they were not part of the poor lending practices that precipitated the financial crisis. Policymakers must consider the impact of the CECL standard on credit unions and their members.
Regulatory updates
There are currently several proposals to provide credit unions and banks with more flexibility in the implementation of the CECL standard. We are evaluating the various options and working with the NCUA and FASB to determine whether these alternatives could, in fact, help alleviate some of the negative impacts of the CECL standard. Furthermore, the banking regulators have finalized a rule to phase in over a three-year period the day-one effects of the CECL standard on regulatory capital.
FASB is also considering a proposal outlining an alternative to the income statement impact of the CECL standard put forward by a group of banks; it is expected to formally vote on the proposal in March. In addition, the board is also expected to make a final determination regarding the reporting of gross write-offs and recoveries by origination year at that time.
Our efforts
We have devoted considerable time and resources to educate credit unions on CECL requirements, and to share the industry’s concerns with FASB. The association has also shared concerns with lawmakers, the NCUA and Federal Reserve, and has worked to obtain certain changes and more guidance on the standard. Last month, our Senior Counsel for Research and Policy Andrew Morris attended a roundtable discussion that covered the banks’ alternative proposal related to the income statement impact along with the FASB’s consideration of charge-offs and recoveries and other transition issues.
NAFCU’s January Economic & CU Monitor report revealed that CECL is one of the issues credit unions are most concerned about this year; the association has a new resource page to help credit unions stay informed on the issue. In addition, the NAFCU CFO Network – an exclusive member-only online community for credit union CFOs – has ongoing discussions about how credit unions are addressing CECL issues. We also have several resources including a CECL FAQ document available that further discusses CECL and its impact, compliance blog posts and an on-demand webinar that highlights credit union guidance for implementation.
In addition to our recent efforts, NAFCU, along with Deep Future Analytics, Allied Solutions and OnApproach, released an in-depth study in 2017 on the possible alternatives and impacts the CECL standard poses to the credit union industry.
While we await possible rulemakings to provide more relief under the standard, we have seen some positive changes in regards to CECL clarification. As a result of our efforts, some flexibility in the standard has been achieved: FASB issued a final update in November to clarify the effective date for its CECL standard, making clear that credit unions would not need to begin reporting data on call reports until the beginning of 2022. The update also clarified that operating lease receivables are not covered within the scope of CECL – a clarification welcomed by NAFCU.
We will continue to work to obtain certain changes and more guidance on the CECL standard to the benefit of credit unions.
