Credit unions in the USA are asking for more time before they have to apply the new credit loss accounting standard (CECL).
Issued in 2016 by the Financial Accounting Standards Board (FASB), the standard focuses on estimation of expected losses over the life of the loans. The current Allowance for Loan and Lease Losses (ALLL) accounting standard relies on incurred losses.
The National Association of Federally-Insured Credit Unions (Nafcu) believes credit unions should be excluded from the standard or be given a one-year delay of the effective date.
Non-public business entities would have originally been required to implement the standard for fiscal years beginning after 15 December 2020. But Nafcu asked that FASB proactively provide credit unions with relief and consider a one-year delay of the effective date for non-public business entities (non-PBEs).
“Nafcu continues to believe that credit unions should not have been included in the CECL standard, especially because credit unions have a unique capital framework and face certain regulatory constraints,” Andrew Morris, Nafcu’s senior counsel for research and policy, wrote in a letter to FASB.
He added: “To deal with this problem, we urge the FASB to partner with the NCUA to identify opportunities for capital relief and prevent a scenario where credit unions must dramatically scale back asset growth or face mandatory supervisory action in the event that net worth ratios fall below minimum levels.”
FASB is currently considering an alternative proposal put forward by a group of banks before a formal vote in March.
Meanwhile, Nafcu is working to provide resources and training to help credit unions across the country prepare for CECL requirements.
Credit Union National Association (Cuna), another trade body for credit unions, also thinks a delay in implementation is required in order to give credit unions and other entities more time to come into compliance.
In December last year Cuna wrote to the House Financial Services subcommittee on Financial Institutions and Consumer Credit. Cuna argued that the application of the current expected credit losses (CECL) standard to credit unions was inappropriate.
The letter warned about the direct effect the standard would have on credit unions’ financial positions as well as the compliance burden that would come along with it.