The Independent Community Bankers of America is getting one more chance to explain why it believes a plan to change the accounting for loan losses will result in major hardship for smaller banks.
The Financial Accounting Standards Board has agreed to meet on Feb. 4 with a delegation of community bank leaders, as well as auditors and regulators. FASB spokeswoman Christine Klimek said plans for a meeting have been in the works since December, adding that other details are still being finalized. The ICBA is in the process of selecting bank executives to attend the meeting.
The meeting will provide Camden Fine, the ICBA's president and chief executive, with one last opportunity to sway the FASB to alter or abandon plans to force banks to record a loan-loss provision as soon as a loan is originated. Once approved, the new standard would take effect in 2019.
Fine on Thursday sent a letter to FASB Chairman Russell Golden requesting that the organization pause its standard-setting process until after the two sides had talked.
Following next month's meeting, the FASB is expected to hold a public board meeting to discuss the pros and cons of issuing a final standard, which will include a summary of all the feedback received. A date for that session has not been set, Klimek said.
Bankers have grown increasingly vocal in their criticism of the proposed Current Expected Credit Loss, or CECL, standard, but James Kendrick, the ICBA's vice president for accounting and capital policy, said in an interview Friday that he appreciated the FASB's willingness to continue talking.
"The fact they're meeting with stakeholders is a good thing," Kendrick said. "We're hopeful they'll pause the process until small banks' concerns have been voiced. The worst thing that could happen is a lack of outreach."
Still, neither Fine nor Kendrick minced words in critiquing CECL.
"A meeting of the full board and only the full board to hear directly from community bankers is now crucial for board members to fully comprehend the failure of CECL as it is currently proposed," Fine wrote in his letter to Golden.
For his part, Kendrick described the proposed standard as "the biggest accounting change we will see in our lifetimes," adding that it would prove disastrous for smaller financial institutions.
CECL would be a major departure from current accounting, which lets banks add to reserves only after losses become probable. In the aftermath of the financial crisis, the FASB concluded that such an approach was reactive.
R. Harold Schroeder, a member of the FASB board, noted that banks were actually scaling back their reserves as late as 2006, just a year before the housing bubble burst and the Great Recession began. Though FASB officials insist otherwise, bankers are worried that they will be forced to use complex modeling to determine the early stage loan loss projections that would be required by CECL. While the FASB might argue that CECL says nothing about complex modeling, it doesn't speak for bank auditors or examiners, Kendrick said.
"They're not going to give any latitude," Kendrick said. "They're going to require specific models with specific data inputs and none of that comes cheap. … There's no off-the-shelf product that banks can plug in."
CECL also fails to take into account the intangible, personal factors that community bankers often rely upon in deciding to approve a loan, Fine said.
"Clearly FASB continues to maintain a lack of understanding for the way community banks manage customer relationships and originate loans in their communities," Fine wrote in his letter to Golden. "More importantly, FASB continues to disregard a community bank's inability to view those loans as standardized financial products."
Banks aren't alone in their concerns about the proposed accounting change.
Mary Mitchell Dunn, a lawyer at Washington law firm CU Counsel and a former senior vice president and deputy general counsel at the Credit Union National Association, credited the ICBA with "continuing to weigh in" on the issue, while urging credit unions to do the same.
"Credit unions shouldn't give up," Dunn said in an interview. "It's not over. FASB doesn't seem to have been persuaded yet that certain institutions need to be treated differently."
The ICBA acknowledges that the current standard is flawed, but it says it believes that estimating a provision on a loan's origination date involves too much speculation. Kendrick said the trade group favors a standard that relies on historic loss experience to determine when losses might occur. The ICBA also wants to prorate provisions over time, instead of doing it all at once when a loan is booked.