A congressional effort to effectively delay an accounting standard now has support from both chambers and parties, a positive sign that the measure may become law.
A bipartisan group of House members, led by Rep. Vicente Gonzalez, D-Texas, introduced a bill June 10 that would delay the current expected credit loss standard until top federal financial regulators, led by the Securities and Exchange Commission, complete a study of its economic effects.
The standard will require financial institutions to estimate and record loan losses at the point of origination, a change from the current accounting model, which requires institutions to record those losses when a loan is likely to be impaired.
Gonzalez's bill, co-sponsored by four other Democrats and five Republicans, mirrors a bill in the Senate introduced weeks earlier. Experts have said that while any bill has been tough to pass in the toxic political atmosphere in Congress, the proposal to delay CECL may have a chance to become law if key members from both parties can be convinced.
Both bills would require the SEC and other financial regulators to conduct a one-year economic study of CECL after the bill becomes law. The analysis would examine to what degree CECL is procyclical, if it poses systemic risks and what impacts it would have on other financial institutions, such as insurance companies. While the study is ongoing, the measure prohibits regulators from enforcing institutions to comply with the standard.
Industry stakeholders have been asking regulators and the Financial Accounting Standards Board — which produced and finalized the rule in 2016 — to delay it until its impacts are fully understood. Banking trade groups and executives have argued that the accounting standard would make it more difficult to lend during times of economic stress.
CECL is scheduled to go into effect for many financial institutions in early 2020. Insiders have largely viewed the push in Congress as a last-resort effort to delay the standard's implementation.
The House bill was co-sponsored by Reps. Brad Sherman, D-Calif.; David Scott, D-Ga.; Josh Gottheimer, D-N.J.; Henry Cuellar, D-Texas; Ted Budd, R-N.C.; Barry Loudermilk, R-Ga.; French Hill, R-Ark.; Roger Williams, R-Texas and Blaine Luetkemeyer, R-Mo.
Luetkemeyer, ranking member of the House Financial Services Committee's Subcommittee on Consumer Protection and Financial Institutions, has been amassing a body of evidence that CECL will be a net negative for the economy.
He has been gathering information from credit card companies, banks, specialty lenders and others on CECL's impact so he can present a complete report to his House colleagues as proof CECL would hurt businesses.
"With the potential to drastically impact consumers across the nation, it is simply unacceptable to continue the implementation of CECL without understanding the broad economic implications," Luetkemeyer wrote in a statement.