Another banking group wants the Financial Stability Oversight Council (“FSOC”) to postpone the effective date of Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. In a letter last month, the Mortgage Bankers Association (“MBA”) urged the FSOC to complete a quantitative impact study to examine the effects of the Financial Accounting Standards Board’s (“FASB”) credit losses standard. The MBA considers the study critical to helping banking agencies, banks, and others understand the standard’s full impact and any unanticipated effects.
Echoing concerns from the Bank Policy Institute, the MBA says the credit losses standard is “pro cyclical.” In other words, ASU No. 2016-13 will force banks to increase loan allowances in an economic downtown, thus limiting how much money they lend customers. Such restricted lending practices could lead to more volatile regulatory capital levels and higher capital levels overall. When banks raise capital levels, less money is available to lend customers and invest.
Pushing back on recent criticisms of the credit losses standard, FASB vice chairman James Kroeker said large, publicly-traded banks should not expect the 2020 effective date to change.