FASB Meeting Produces Pending Changes to CECL Standards
April 5, 2016
April 5, 2016
The Financial Accounting Standards Board (FASB) has indicated that it expects to finalize the new credit impairment standard, referred to as CECL (Current Expected Credit Losses) by June 30. The proposed changes follow combined advocacy efforts from CUNA, the Association and dozens of lawmakers, urging FASB to adopt flexible forecasting methods for estimating expected credit losses, as well as a long implementation period.
FASB has indicated that the guidance will apply to credit unions beginning in 2020. The model creates three significant shifts from the current incurred loss model:
- Creates a forward looking analysis requiring future information, and supportable forecasts to estimate the Allowance for Loan Losses;
- Requires credit unions to reserve for losses over the entire life of the loan, rather than a 12 month horizon; and
- Requires credit unions to evaluate the possibility that a loss exists or does not exist, removing the probable threshold.
“In January of 2008, 20 percent of economists, which is the historical average, believed that there would be a recession in the next 12 months using the best forecasting models available. Eight months later we were in the throes of the financial collapse. No one I’ve talked to has concerns about reserving for losses that they are expecting to take. People are concerned that the CECL model will require reserves that are not reasonable to expect,” said John Trull, AVP of Regulatory Advocacy for the Northwest Credit Union Association
“The real challenge is going to be the expense that goes along with collecting the type of data required for good predictive modeling particularly for small credit unions.”
Trull also noted that some credit unions have expressed additional concern over how those costs would be spread, confirming it should count as a one time capital expense.
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