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Washington Wrap — Lawmakers set sights on bank accounting standard CECL

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Washington Wrap — Lawmakers set sights on bank accounting standard CECL

The Washington Wrap is a weekly look at regulation, news and chatter from the Capitol. Send tips and ideas to polo.rocha@spglobal.com, david.hood@spglobal.com and declan.harty@spglobal.com.

On Capitol Hill

A push on Capitol Hill to delay a major accounting standard change seemed to gain momentum as federal banking regulators visited both chambers of Congress for a pair of hearings.

During a House Financial Services Committee hearing on May 16, members of both parties slammed the current expected credit loss accounting standard, known as CECL. The accounting standard will change how banks reserve for loan losses and will go into effect for many banks in early 2020.

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Rep. David Scott, D-Ga., worried that it would be "absolutely devastating" for small banks and credit unions, while Rep. Blaine Luetkemeyer, R-Mo., asked regulators to "put some pressure" on the Financial Accounting Standards Board to delay CECL.

A day earlier, Sen. Doug Jones, D-Ala., also brought up CECL when questioning top officials from the Federal Reserve, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and the National Credit Union Administration.

Lawmakers have asked U.S. regulators to try to stop CECL and to conduct a quantitative study of its effects, including critics worries' that it would cause banks to pull back on lending during a downturn.

But FDIC Chair Jelena McWilliams told Jones that while U.S. regulators are in continuous dialogue with FASB, the agencies' hands are "somewhat tied" because they did not create CECL.

The comments followed a letter from Jones and 14 other senators requesting that FASB delay CECL until regulators conduct a study of it. Sen. Thom Tillis, R-N.C., who signed onto the letter, is expected to introduce a bill that would delay CECL's implementation until regulators complete the study.

The regulators also told lawmakers they are working speedily to finish up the implementation of the Dodd-Frank Act changes they approved last year.

Fed Vice Chairman for Supervision Randal Quarles told Rep. Patrick McHenry, R-N.C., the committee's ranking member, they are on track to finish the bulk of the changes by the third quarter and complete all of them by year-end.

Regulators also suggested they do not believe further public hearings on the proposed merger between BB&T Corp. and SunTrust Banks Inc. are necessary.

Committee Chair Maxine Waters, D-Calif., has pressed them to schedule additional public hearings beyond the two they held in Charlotte, N.C., and Atlanta, Ga., saying hearings are also needed in other states where the two regional banks have a presence.

But McWilliams said the two hearings included individuals from 12 of the 16 markets BB&T serves and the nine of the 11 markets that SunTrust operates in. More than 90% of the groups present spoke favorably about the merger, which does not "seem to imply that we need to do more hearings," she said.

Waters also said she plans on holding hearings on the merger at her committee and is asking regulators to hold off on making a decision on it until then.

At the SEC

The SEC has proposed a package of rule reforms designed to enhance how certain cross-border derivative transactions are regulated.

On May 10, the regulatory agency issued a series of proposals that it said were designed to address certain "implementation issues and efficiency concerns" in how security-based swaps are regulated by both the SEC and its derivatives-focused counterpart, the U.S. Commodity Futures Trading Commission.

The proposals target a handful of issues in the space, including the use of transactions that have been "arranged, negotiated or executed" by U.S.-based personnel. They also focus on the requirement that security-based swap dealers and major security-based swap participants that are not U.S. residents must provide the SEC with access to their books and records.

Other news

Federal Housing Finance Agency Director Mark Calabria said he wants his agency to have the power to "charter" more mortgage-buying companies to compete with industry giants Fannie Mae and Freddie Mac, once they are taken out of conservatorship.

Calabria assured attendees at a May 14 National Association of Realtors conference he would only take Fannie and Freddie out of conservatorship once he has "100% confidence" that a regulatory and supervisory framework is in place.

The newly installed director said he would like Congress to give the agency more regulatory power at the same time the GSEs are put on a path out of government control. Some of those powers would be to supervise the safety and soundness of the GSEs, as well as charter competitors in the secondary mortgage market to spread risk from the Fannie and Freddie duopoly.

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