Trade Group Asks Federal Regulators to Delay Credit Loss Standard
Months after the banks and trade groups called for additional time to implement the Financial Accounting Standards Board’s (“FASB”) credit loss standard, the Bank Policy Institute wants federal regulators to postpone the most significant change to bank accounting in decades. In a letter to the Financial Stability Oversight Council (“FSOC”), the trade group warned that the financial system could be at risk due to Accounting Standard Update (“ASU”) No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
The Bank Policy Institute, which represents several large U.S. banks, said implementing the FASB’s current expected credit loss model could undercut financial stability in a recession or financial crisis. The group believes ASU No. 2016-13 could amplify bank losses in an economic downturn, potentially leading to restricted lending capabilities and lower bank earnings. To resolve the issue, the Bank Policy Institute recommendations the FSOC to partner with the FASB to delay the credit loss standard’s effective date and review the standard’s economic impact. ASU No. 2016-13 goes into effect for large banks in 2020.
The FASB received a copy of the letter and plans to respond. However, a FASB spokesperson noted that the board has made no promises to act on the Bank Policy Institute’s recommendations. The spokesperson also stated that FASB plans to continue working with organizations for effective implementation of the standard and answer any questions that may arise.