September 26, 2018

CECL Delay For Smaller Financial Institutions

The FASB is proposing a delay to the implementation date for the new CECL loss forecasting accounting standard. CECL has been called the most significant change in bank accounting in years. The new standard requires that lenders project total expected losses over the life of the loan rather than using an impaired status to set the loan loss reserve. This will require that more data is used to support the analysis which will be a major shift for many financial institutions.

The Credit Union National Association, CUNA, supported the proposal to push out the effective date by a year for 'non-public business entities.' State and federally charted credit unions as well as many other smaller banks and other lenders will be affected if the proposal is implemented.

One thing CUNA emphasized is the 'compliance burden' of the new standard. That's really the wrong way to look at this. Lenders should look at what they can learn and act on from the new standard. CECL will highlight total expected losses from a group of like accounts. This is the first step in understanding the likely profitability of the segment. It will also highlight what actions may be needed to adjust strategy, marketing, underwriting, and operations. Looking beyond the final CECL number to gain insight will help turn 'compliance burden' into better business decisions.

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