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Coronavirus Relief Bill Could Delay Loan Loss Accounting Rule (2)

March 22, 2020, 3:46 PMUpdated: March 22, 2020, 5:51 PM

Banks could opt out of sweeping credit loss accounting rules under a recent draft of the revised GOP coronavirus relief bill.

The “Coronavirus Aid, Relief, and Economic Security Act,” H.R. 748, says no bank or financial institution would be required to comply with the Financial Accounting Standards Board’s current expected credit losses (CECL) standard until public health officials declare the coronavirus public health emergency over or Dec. 31, whichever is earlier.

The draft legislation comes on the heels of intensifying resistance to the new accounting rule. Six bank trade groups asked SEC Chairman Jay Clayton Sunday to use the market regulator’s authority to delay major new loan loss accounting rules or allow banks to opt out of them.

The spread of the coronavirus and the ensuing economic fallout makes it a difficult time for banks to adopt the current expected credit losses (CECL) accounting standard, the groups wrote.

“We should not be subjected to an accounting standard that may disincentive lending as CECL does by requiring banks to set aside capital for potential losses over the entire life of the loan—taking capital out of the system during a moment when it is most needed,” the groups wrote. “A long-term delay of CECL will allow us to deploy that capital today in support of our customers and the economy.”

  • The letter comes on the heels of legislation introduced to delay the accounting rules as well as an unusual letter from the Federal Deposit Insurance Corp. to the Financial Accounting Standards Board (FASB) to allow banks to opt out. FASB has previously resisted calls for a delay.
  • The Securities and Exchange Commission designated the Financial Accounting Standards Board, the author of the CECL standard, as the accounting standard setter for public companies but the securities laws “expressly authorize the commission” to set such standards in the first instance, the groups wrote.
  • The regulator could “unilaterally exercise” its authority to promulgate a rule to overturn CECL or allow banks to delay implementing it.
  • The letter was signed by the American Bankers Association, American Financial Services Association, Consumer Bankers Association, CRE Finance Council, Mid-Size Bank Coalition, and the Mortgage Bankers Association.
(Updated with draft bill language.)

To contact the reporter on this story: Nicola M. White in Washington at nwhite@bloombergtax.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Rachael Daigle at rdaigle@bloombergtax.com

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