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Credit union lobby supports delay in CECL adoption

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Credit union lobby supports delay in CECL adoption

The National Association of Federally-Insured Credit Unions expressed its support for delaying the adoption of the current expected credit losses accounting standard for small banks, not-for-profit organizations and others.

A delay of CECL's effective date would provide much-needed relief to credit unions by giving them additional time to train staff, develop models for different loan pools and conduct parallel runs, the credit union lobby wrote in a letter to the Financial Accounting Standards Board, which proposed delaying CECL to 2023 from 2020.

NAFCU also said it supports the accounting board's plan to help educate credit unions about the application of CECL and called for FASB to continue working with the National Credit Union Administration to provide training before 2023.

NAFCU called for FASB to explore ways to address the impact of CECL on credit union's capital levels, given that a credit union's net worth is defined as its retained earnings balance as determined under generally accepted accounting principles.

"Bearing in mind credit unions' conventional reliance on retained earnings to support continued lending, a rapid increase in allowances during an economic downturn could severely tighten credit conditions in a way that disproportionately impacts the credit union industry's 118 million members," the organization said.

While NAFCU maintained its position that credit unions should not be subject to CECL in the first place, it also called for FASB to consider "less burdensome alternatives" for its members.

The American Bankers Association also wrote to FASB, calling for "a full and indefinite" delay of the adoption of CECL. The group warned that CECL could actually increase procyclicality in the banking system, as opposed to reducing it as intended, because it could cause economic downturns to last longer and be more severe due to a lower supply of credit, unless strong mitigating measures are taken.