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CECL group forges ahead on implementation issues, no delay in sight

The group behind the banking industry's revolutionary overhaul of credit losses met to discuss practical and technical implementation issues in the wake of its passage last summer, with no talk of a potential delay.

The Financial Accounting Standards Board met with its technical resource group of accounting professionals to discuss implementation issues following the release of the current expected credit loss model, or CECL. Financial institutions have several years to implement the standard, but already questions are emerging about how to apply the standard to various instruments or in certain situations.

CECL will change the way banks account for losses on assets such as loans and securities. Under CECL, banks will book lifetime loan losses on the day of origination, rather than when a loss becomes probable. The standard may require banks to increase the amount of data they use to forecast loan performance. It could also cause some to change the way they model losses.

FASB and its advisory group discussed technical topics such as providing guidance for transitioning pools of purchase credit impaired assets as they deteriorate and acceptable methods for estimating the life of credit card receivables.

Various interpretations of the standard came to a head as members of the advisory group and the board discussed the merits of several approaches and how they would apply to different institutions or scenarios. At some points, several members were confused and wanted clarification.

But one theme of the meeting that emerged was that members are very conscientious that different institutions have different approaches and resources, from the moneycenter banks down to community banks and credit unions. The board and members discussed the different ways financial institutions may currently account for their losses and what that would mean under CECL.

In a discussion about credit mitigation and troubled debt restructurings, a member of the advisory group pointed out that one potential interpretation was a better fit for many community banks. He said that one approach being discussed would not work for institutions that do not pool their loans, and argued in favor of a standard that reflected that many of these banks know what loans were encountering credit trouble.

The group also discussed the importance of bank examiner education before CECL goes into effect, given the large influence examiners have over the allowance and processes at their supervised banks.

Not brought up in the meeting were calls for an indefinite suspension of CECL, put forth by the National Association of Federally-Insured Credit Unions in a recent letter to the board. NAFCU President and CEO Dan Berger said FASB should pause, delay implementation and pursue "all available options to ease the burden of this complex accounting standard" on small institutions like credit unions. But FASB spokeswoman Christine Klimek told S&P Global Market Intelligence recently that "there is no plan at this point to delay the standard." She said the upcoming meeting is "really to assist with interpretive questions about implementation and guidance, but not about changing the standard."

Indeed, NAFCU representatives did not speak during the formal meeting, which was webcast.

The board, staff and its advisory board were unable to come to conclusions for issues like troubled debt restructurings and credit card receivables, tabling those discussions so they can spend more time defining the problem and terms. These issues will need to be revisited after the staff meets with members of the advisory group to discuss examples, additional terms and improvements. It may necessitate another meeting in the future, one staff member said.

"It's important we come to a resolution. I don't think we're as far off as we seemed on that [the TDR issue] and I think the most efficient way we can solve it is … to huddle and digest what we talked about," the staffer said. "It's not something we can do relatively soon."