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BB&T CEO believes regulatory relief on CECL, $250B systemic threshold is coming

BB&T Corp. CEO Kelly King said he is optimistic that policymakers will consider offering regulatory relief on a new accounting standard and the asset threshold at which banks are labeled systemically important.

Banks have been lobbying for changes to the upcoming accounting standard known as Current Expected Credit Loss, or CECL, which would require banks to set aside provisions to cover the losses expected over the life of a loan at origination. Presently, banks only set aside provisions once a loss is considered probable. BB&T CFO Daryl Bible said Oct. 18 during an earnings call that the bank should be ready to run parallel runs on CECL by early 2019. He said the bank is adapting financial models it has already built for stress testing.

At the same time, Bible said the bank is hopeful that regulators or the Financial Accounting Standards Board will reconsider the accounting switch. He said the Bank Policy Institute, an industry group representing large banks, issued a letter Oct. 17 to the Financial Stability Oversight Council asking the regulatory body to request that the board pause CECL adoption so that it could be studied further.

"The studies that we've seen, and the analysis that we have, basically shows that our ability to lend, if we went through the last downturn that we just went through, would be twice as worse as what we had just because of the distortion of earnings and capital," Bible said. He said FASB could reconsider CECL or regulators could make a change that would soften the capital impact from adopting the standard.

King said he was optimistic that regulators would look into the issue.

"We have Secretary [Steven] Mnuchin, and we believe he will lead the effort to the Financial Stability Oversight Council to bring all the organizations together to look at how negative this will be from a systemic point of view," King said.

King also said he was optimistic there might be a reconsideration of the $250 billion asset threshold. Once banks grow beyond that size, regulators generally label them as "systemically important financial institutions," a designation that subjects the bank to additional scrutiny and regulatory cost. King said BB&T would cross the threshold eventually, given the bank's organic growth profile, but he said there is a chance regulators will reconsider the threshold before that happens.

"But there is a lot of movement right now. You've heard some of the speeches that [Federal Reserve] Vice Chairman [Randal] Quarles has talked about aggressively looking at above $250 [billion], so it's not self-evident that we would even have to have additional capital" after crossing the threshold, King said.

King said there is a chance Quarles would pursue a change to a system that considers a bank's overall systemic risk rather than a simple asset number, a change that would favor BB&T and other regional banks. On the other hand, King said the bank is holding excess capital partly because of the uncertainty around CECL.

"Nobody can tell you today what the underlying impact on capital is going to be. And we just don't want to ever be in a place where ... we end up having to go out and attract capital from the marketplace," he said.