Lawmakers and Bank Representatives Discuss FASB Credit Loss Standard
The Financial Accounting Standards Board’s (“FASB”) credit loss standard was a key focus at the American Institute of Certified Public Accountants’ National Conference on Banks and Savings Institutions in Maryland last week. Lawmakers and representatives from the banking industry met with Securities and Exchange Commission (“SEC”) chief accountant Wesley Bricker and FASB member Harold Schroeder to share their concerns regarding the guidance under Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
During a session in Rep. Blaine Luetkemeyer’s office, several regional bank representatives urged Bricker and Schroeder to amend ASU No. 2016-13. Banks want to separate loss estimates into two categories: one based on expected losses for the following 12 months and a second based on expected losses until maturity of the primary financial instruments. Current guidance calls for putting aside loss reserves based on one estimate of losses for the loan or security’s lifespan.
Following the request would be a significant change to the credit loss standard and was briefly mentioned in comment letters on a regulatory proposal released earlier this year that aims to alleviate the impact of ASU No. 2016-13 on bank capital. While the FASB has yet to receive a formal request to amend its standard, Schroeder noted that the board’s leadership would hold an open session to publicly debate any submitted requests.