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Senate Republicans introduce bill to 'stop and study' CECL


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Senate Republicans introduce bill to 'stop and study' CECL

Five senators introduced a bill May 21 that would delay the implementation of an accounting standard many in the financial industry fear will make it more difficult to lend during an economic downturn.

The bill would require the Securities and Exchange Commission and seven other financial regulators to delay enforcing the current expected credit loss accounting standard, known as CECL, until they complete a thorough study of its broad effects on the economy.

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CECL shifts how financial institutions reserve for loan losses. It requires institutions to recognize an estimate of the potential losses over a loan's lifetime and record those losses at origination. The current accounting standard requires firms to recognize and reserve for loan losses when it becomes apparent the loan will be impaired. CECL goes into effect for many institutions in early 2020.

The bill would require regulators to conduct a quantitative study of CECL's potential impact on credit availability "in consultation" with the Financial Accounting Standards Board, the independent organization that developed CECL. The study would also examine whether the standard is procyclical, or if it makes lending more difficult during times of economic stress.

The bill, titled the "Continued Encouragement for Consumer Lending Act," requires that the study be completed one year after it is signed into law.

While the study is being conducted, the bill prohibits the SEC and financial regulators from forcing financial institutions to comply with CECL.

Sen. Kevin Cramer, R-N.D. and cosponsor of the bill, said in an interview that CECL will cause more undue compliance burden on smaller community banks, especially in his rural state.

"It's my intention to not change something that doesn't need changing," Cramer said, referring to accounting standards. "Bankers, and in particular, community bankers, have told me [CECL requires] additional compliance and work that doesn't add any value; it's just more work and more costs on their end."

American Bankers Association President and CEO Rob Nichols supported the "stop and study" bill in a statement, saying that the regulators' analysis of CECL will likely turn up the same results as the trade group's own internal analysis, which found that CECL will negatively affect banks' ability to lend.

"Only a rigorous quantitative impact study conducted by regulators can properly assess the effect this new standard will have on financial institutions, their customers and the broader economy," Nichols wrote. "This commonsense legislation would make that happen."

The bill, introduced by Sen. Thom Tillis, R-N.C., was expected to be released following a letter he and 14 other senators sent to Federal Reserve Chairman Jerome Powell and Federal Deposit Insurance Corp. Chair Jelena McWilliams, urging them to delay implementation of the standard until the FDIC studies it.

Following a hearing days after the letter was sent, McWilliams told S&P Global Market Intelligence that she would not be conducting a study of CECL and declined to comply with the senators' request.

The letter was signed by eight Democrats and seven Republicans and co-authored by Sen. Doug Jones, D-Ala. The bill has so far garnered five co-sponsors, all Republicans. Sen. Kyrsten Sinema, D-Ariz., told reporters days before the bill was introduced that she would strongly consider it, but she declined to pledge her support prior to its release.

Senate Banking Committee Chair Mike Crapo, R-Idaho, said in an interview before the bill was released that he was aware of it but had not decided whether he would take it to his committee for a markup, dimming the chances the bill will be voted favorably out of the Senate.

"I think there are some legitimate concerns being raised," Crapo said in an interview. "I'm not sure how exactly Congress will weigh in, it's something that our regulators will have to decide what to do."