Banks Clash over FASB’s Credit Losses Proposal

February 4, 2019

Supporters of a proposal to change a key part of the Financial Accounting Standards Board’s (“FASB”) credit losses standard attempted to make progress at the board’s recent public roundtable. Held at the FASB’s headquarters, the roundtable served as an opportunity to strengthen banker support for the proposed change on Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Despite the efforts, however, the roundtable discussion exposed the divide among bankers concerning whether and how the FASB should amend its standard.

Representatives from mid-sized banks called for tweaks to ASU No. 2016-13, but large banks pushed back on the changes. Community banks are also uncertain about the proposal, which would keep the central basis of the standard: the current expected credit losses model (“CECL”). Twenty-one regional banks submitted the plan to the FASB in November 2018.

With regional bank representatives at the meeting pushing for changes, large banks and community banks were skeptical about the proposal as it stands. Large banks informed the FASB they were committed to following CECL by the 2020 effective date, but community banks said they were less prepared and noted any further changes to CECL would hinder their progress.

The roundtable discussion highlighted the challenges of creating an all-encompassing standard for a multifaceted industry. As the credit losses standard’s effective date for public companies approaches, the FASB has been pressed to postpone or amend key aspects of ASU No. 2016-13.

The FASB plans to formally examine the proposal next month. There was no public comment made at the discussion’s end stating where the FASB stood on the proposal, and it is uncertain whether the plan will gain any traction.