Senate Republican Bill Would Push Loan-Loss Accounting to 2025

Sen. Kevin Cramer of North Dakota and other Republicans introduced a bill Wednesday that would give banks more time—until 2025—to implement a major new accounting rule that requires businesses to book credit losses well before they happen.

The bill (S.3502), co-sponsored by Sens. Tom Cotton of Arkansas, Thom Tillis of North Carolina, and Jerry Moran of Kansas, would prohibit officials of any federal agency, including financial regulators, from requiring businesses to follow the current expected credit losses (CECL) accounting standard before Dec. 31, 2024.

Large, publicly traded businesses started following the landmark accounting standard in January, but privately held banks, credit unions, and smaller public companies have until 2023. The standard, published by the Financial Accounting Standards Board, affects all businesses but hits banks the hardest. By having to estimate losses before they happen, banks say, they could be forced to curtail lending in an economic downturn.

The new accounting already was expected to make most bank loan-loss reserves increase much sooner than under the outgoing rules. Economic disruption from the coronavirus adds uncertainty and volatility to those estimates.

The bill, the Community Bank Regulatory Relief Act, would also lower the community bank leverage ratio—a ratio of capital to unweighted assets—to 8% from 9%. “This would give community banks extra resources to meet their financial needs during the coronavirus pandemic,” Cramer said in a press release.