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American Bankers Association calls for delay of CECL for all companies

The American Bankers Association is recommending "a full and indefinite delay" of the current expected credit loss, or CECL, accounting standard for all companies.

In a comment letter to the Financial Accounting Standards Board, the ABA called for the delay in implementing CECL to provide for adequate opportunity for the board, the Securities and Exchange Commission, and the federal banking agencies to perform and evaluate a Quantitative Impact Study on the impact of CECL implementation on the general economy, the banking industry, and borrowers across an economic cycle.

The CECL project was initially based on the objective of implementing an accounting standard that would reduce the inherent level of procyclicality in the banking system. However, the practical application of CECL would actually increase procyclicality into the banking system, the ABA noted in its letter. Unless there are other strong mitigating measures taken, CECL will result in economic downturns being more severe and lasting longer. This will, in turn, raise the cost and availability of credit, especially to consumers and to those borrowers of nonprime credit quality or those who rely on loans with longer terms, the ABA warned.

The FASB in August proposed to delay the implementation of CECL for private companies, not-for-profit organizations and smaller reporting companies as defined by the Securities and Exchange Commission by two years to January 2023. The banking industry, in general, has widely opposed the new accounting standard as it will make it harder to lend. Various community bankers welcomed the proposed delay, saying they do not have sufficient resources to comply with the standard.

Jamie Dimon told Congress in April that while CECL will not be challenging for large banks, it will be detrimental for smaller banks due to their insufficient capital. "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," the JPMorgan Chase & Co. CEO said.

The ABA said a full delay that will cover all companies will allow regulators to fully evaluate CECL's systemic impacts and allow FASB to reevaluate investors' needs regarding CECL. It also said the auditing industry is also not ready for the Jan. 1, 2020, implementation date. The ABA also commented that adding a category between those who will be covered under the proposed delay and not will create an unequal playing field among community banks given additional costs some may experience.