Republican Senate bill would delay CECL until further study

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WASHINGTON — Banks and credit unions would not have to comply with a new loan-loss accounting standard until regulators study the impact it will have on credit availability and small financial institutions under legislation introduced by Republicans on the Senate Banking Committee.

Sen. Thom Tillis, R-N.C., introduced a bill Tuesday that would require federal regulators to conduct a quantitative study of the potential impacts of the Financial Accounting Standards Board’s new Current Expected Credit Loss standard, or CECL, delaying financial institutions’ compliance with the new policy a year.

The bill would require the Securities and Exchange Commission, in coordination with federal financial regulators, to submit a report one year after its enactment to the Financial Accounting Standards Board on the impacts CECL will have on credit availability, regulatory capital, financial institutions of varying sizes, and U.S. competitiveness.

Neither the SEC nor any federal banking regulators would be able to require institutions to comply with CECL during the one-year review period.

As it currently stands, CECL is set to take effect Jan. 1 for publicly traded banks and Jan. 1, 2022 for privately held banks and credit unions. But the industry has warned CECL will be overly costly for smaller institutions to comply with, and Republicans and Democrats on the House Financial Services Committee sounded the alarm on the new FASB policy at a hearing last week.

So far, Sens. Jerry Moran, R-Kan., Kevin Cramer, R-N.D., Tom Cotton, R-Ark., David Perdue, R-Ga., and Mike Rounds, R-S.D., have signed on as co-sponsors for Tillis’ bill to delay CECL until further study. Rep. Blaine Luetkemeyer, R-Mo., is floating similar legislation in the House.

The effort to delay CECL was lauded by the industry.

“An ABA review of preliminary bank estimates indicates CECL would likely cause significant spikes in loan loss reserves and inadvertently restrict consumer lending during periods of economic stress,” said Rob Nichols, president and chief executive officer of the American Bankers Association. “Only a rigorous quantitative impact study conducted by regulators can properly assess the effect this new standard will have on financial institutions, their customers and the broader economy. This commonsense legislation would make that happen.”

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CECL Regulatory reform Accounting standards Accounting regulations Senate Banking Committee FASB SEC