During a recent Financial Accounting Standards Board (FASB) meeting, two key decisions were announced related to the Current Expected Credit Loss (CECL) model. The FASB is currently discussing the proposed Accounting Standards Update, Financial Instruments-Credit Losses (Subtopic 825-15), with the goal of developing final guidance for the impairment of financial assets. The March 12 meeting minutes call for the final ASU to be issued in the second half of 2014.
The other key decision made states that the current CECL model should apply to all financial assets. This means all public and private financial institutions will be subject to the new requirements once announced and implemented.
The proposed CECL model, originally released in December 2012, has been a topic of much debate. In its present form, it will require institutions to recognize an immediate allowance for credit losses that represents all expected losses. The OCC’s Thomas Curry is on record stating the proposed model will likely increase a bank’s ALLL reserve by 30-50 percent. In October of 2013, IBAT weighed in with FASB on the proposed rule via a comment letter, calling the proposal “complex and cumbersome.” We are continuing efforts to protest this burdensome and unnecessary “piling on” to community bank regulatory burden and IBAT members are encouraged to keep up the pressure on FASB by submitting comment letters of their own.
IBAT Associate Member, Sageworks, has developed a FASB CECL preparation kit to assist community bankers in learning more about the data requirements and to prepare for the change. Sageworks also provided content for this article. It is important to note that the preparation kit is based on the CECL as it is proposed, and changes are (we hope) likely in the final rule. Click here to download the kit.