RapidRatings Blog

Current Expected Credit Loss (CECL) Opponents Gather Steam in May

Posted by Rapid Ratings on May 23, 2019

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The month of May is shaping up to be a notable one on the CECL front now that the 116th Congress has organized and is settling into its business.


 

 

CECL Opponents Pushing Back

  • On May 6th, a delegation of 25 U.S. House members published a letter to SEC Chairman Jay Clayton, in which they expressed concern about CECL’s prospective impact on credit cost and availability, especially on the consumer side – concern based on the results of a recent ABA poll of mid-sized and regional banks. The representatives went on to pose a number of broadly framed questions about developing CECL regulatory practices to Chairman Clayton and to federal banking agencies, questions that called for delay in CECL’s effective date until answers were forthcoming and “completely understood.” While the sentiments expressed represented nothing new to the CECL debate, the list of signers included four Democrats – making it the first bi-partisan anti-CECL exercise. Vincente Gonzales (D-TX) co-sponsored the letter with Roger Williams (R-TX); both are members of the House Financial Services Committees.

  • On May 10th, a group of 15 U.S. senators published a letter to Fed Chairman Jerome Powell and FDIC Chairman Jelena Williams, in which they called for serious delay in CECL implementation until the completion by both agencies of an appropriate study of CECL’s likely economic impact. The senators noted that “…banks of all sizes have raised meaningful concerns…” about CECL’s likely harm to credit availability, especially in residential mortgages and small business loans, particularly when the economy is contracting. Once again, the letter was a bi-partisan exercise, but this time with Democrats as the majority of signers, with Doug Jones (D-AL) joining CECL’s longstanding foe, Thom Tillis (R-NC), as co-sponsor.

  • On May 15th a group of 107 mid-sized and regional banks published a letter to Senate Banking Committee Chairman Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-RI). The letter reiterated the industry’s longstanding complaints about CECL, along the same lines as the House and Senate letters days beforehand. Once again, writers pressed for CECL delay, based on the need for further impact study. This new group was far larger than the group of regionals that conveyed very similar sentiments back in November.

  • On May 22, Senators Tom Cotton (R-AR), Kevin Cramer (R-ND), Jerry Moran (R-KS), David Perdue (R-GA) and Mike Rounds (R-SD) joined together to introduce the “Continued Encouragement for Consumer Lending Act” – quickly shorthanded as “CECL Stop & Study.” It would require the SEC and Federal financial regulators to conduct a quantitative CECL impact study, in coordination with FASB, and to report results to Congress within one year of the Bill’s enactment. Most notably, it would also delay any CECL enforcement by Federal regulators for another full year after presentation of the required impact study.

In the House, some of the signers of the May 6th letter are reportedly preparing to submit a CECL bill very much like the senators.

While Opposition Grows, CECL Implementation Progress Remains Vital

So many new Washington initiatives over such a short space of time are no doubt unwelcome to CECL’s proponents. However, it remains to be seen if these initiatives draw broader support within Congress, especially from the committee chairpersons whose leadership would seem to be necessary to confront the strong support that the SEC and federal banking agencies have continually expressed for CECL since FASB’s pronouncement in June 2016. On the same day that the senators submitted “CECL Stop & Study” FASB Chairman Russell Golden reiterated the Board’s commitment to CECL’s original timetable to reporters covering a FASB-related event in Washington.

Any entity holding back on appropriate CECL preparation in the expectation of a Congressional reprieve is still taking on considerable risks to the quality of its eventual reporting and to its relationships with both regulators and (where applicable) the investing public.

Topics: Financial Services, Regulatory Compliance, Market Events, CECL