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Dimon tells Congress CECL will hurt small banks during stress

JPMorgan Chase & Co. Chairman and CEO Jamie Dimon said that an accounting standard change set to go live in early 2020 will be detrimental for small banks.

During an April 10 congressional hearing featuring the CEOs of seven of the largest American banks, Dimon told Rep. Blaine Luetkemeyer, R-Mo., that the current expected credit loss accounting standard, known as CECL, will be far less challenging for JPMorgan and its peer banks.

But Dimon said CECL will negatively affect smaller banks that do not have as much capital to reserve against the loans they make.

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"It will put smaller banks into a position that when a crisis hits, they will virtually have to stop lending because putting up those reserves will be too much," Dimon said. He encouraged Luetkemeyer and the panel to "reconsider" the issue.

CECL was finalized by the Financial Accounting Standards Board in 2016 and required institutions to put capital aside for a loan's entire lifetime, recognizing the potential losses at origination. FASB's aim was to provide investors with more transparency into potential losses of those loans and assets.

But the banking industry has warned against the possibility that CECL will be procyclical and discourage lending during a downturn. Federal Reserve Chairman Jerome Powell said during a February hearing that the regulator has been working with banks to implement the rule without too many disruptions and that the Fed does not think CECL will have large procyclical impacts.

Luetkemeyer has waged a long campaign to drum up enough evidence of CECL's negative impacts to reintroduce a bill that would nullify the rule.

"For JPMorgan, I don't have concerns," Dimon said, citing his bank's reserving estimates of $6 billion to $10 billion. "[But] CECL will constrain [small] banks at precisely the wrong time."