Proposals to Further Delay CECL Implementation: First by Lawmakers and Now by Standard Setters

Since the Financial Accounting Standards Board (FASB) issued their Accounting Standards Update in June of 2016 regarding the current expected credit loss (CECL) model for measurement of credit losses, there has been continued criticism regarding implementation. The CECL model aims to require financial institutions to estimate and record loan losses when loans are originated, as opposed to the current model where those losses are recorded when the loan is deemed to be impaired. Criticism has been shared by financial institutions of all sizes, trade associations, and lawmakers alike. Each group argues that rushed implementation will result in financial burdens on institutions and possible restrictions on consumer lending.

Two bills have been introduced to Congress so far in 2019 to delay the implementation of CECL further. Senator Thom Tillis introduced the first bill in May, and house member Representative Vicente Gonzales introduced the second bill in June. The two bills are similar in that they both propose that CECL implementation should be delayed while an economic study is performed by regulators to determine the impact that CECL will have on financial institutions and the economy as a whole. Specific topics of study would include potential effects on the accessibility of credit, systematic risks during economic downturns, the burden on smaller financial institutions, and competitive effects on the US. While these bills have gained little traction in Congress, their introduction sheds further light on the uncertainties regarding the CECL model.

Good news for smaller financial institutions came about on July 17 as the FASB voted to propose a deferral of the CECL effective date. The proposal would establish two “buckets.” One bucket would be SEC filers other than smaller reporting companies, and the second would be all other entities. SEC filers other than smaller reporting companies would still need to implement CECL in the fiscal year and interim periods beginning after December 15, 2019, while all other entities would be delayed until the fiscal year and interim periods beginning after December 15, 2022. The FASB Chairman, Russell Golden, stated in an interview, “Additional time would give stakeholders more ability to learn from larger lenders.” The FASB did not discuss nor comment on the possibility of requiring an economic study as the bills introduced into Congress this year would. This month the proposal will go through a 30-day public comment period.