FASB Reviews revised CECL proposal with TRG

Apr 4, 2016

The Transition Resource Group (TRG) held their initial meeting on April 1, where they discussed a revised proposal for the upcoming CECL standard. The TRG was assembled to share views and concerns about the expected credit loss portion of the upcoming CECL standard (Subtopic 326-20) as institutions work toward implementation once the standard is finalized.

Discussions at a recent FASB roundtable, which included auditors, bank associations, and credit union associations, resulted in an outpouring of advocacy for changes to the standard in order to ensure scalability for institutions of all sizes. In their April meeting, the TRG reviewed a revised version of the standard. TRG members had a marked, positive change of tone in discussing the revised language, with some members indicating that the new revisions incorporated changes suggested by various industry groups.

After the April 1 meeting, the ICBA issued a news release, stating that the “FASB has clearly listened to the concerns of the ICBA and the nation’s community banks.” Additionally, they feel that the revised CECL proposal is more scalable and provides flexibility for community banks, allowing them to utilize personal expertise and understanding of local markets to determine expected losses. While it seems that the FASB has taken steps in a positive direction to provide needed clarification to the standard for smaller institutions, not everyone in the industry feels they have tweaked it enough to provide relief for community banks from compliance burden.

In a statement released on April 4, ABA VP Mike Gullette feels that a key example for community banks in the recent version is too simplistic and may be easily misunderstood. In addition, he states that the revision doesn’t change the fact that, “community banks will be required in real life to build and maintain data warehouses to support CECL estimates.”

While it seems that the FASB is nearing the final guidance release, the NAFCU is calling for the FASB to issue an updated exposure draft, and open it for public comment before finalization. If the FASB were to do so, the timeline for finalization would be further delayed.

In TRG Chairman, and FASB Member, Lawrence W. Smith’s closing remarks during the April 1 meeting, he outlined the next steps for the CECL proposal. He stated that the FASB plans to meet again toward the end of April, where staff will present a cost-benefit summary of CECL implementation. In addition, the board will discuss whether or not the effective dates should be changed since the draft release has been unexpectedly delayed. Lastly, a vote will take place on whether or not to move forward with final drafting.

Assuming the vote for final drafting is in the affirmative, the FASB expects the final CECL standard to be released on June 30.

Related Asset - Whitepaper:
CECL Data Prep Guide

CECL Data Prep Guide - Download the PDF

Related Asset - Whitepaper:
CECL Implementation Prep Guide

CECL Implementation Prep Guide - Download the PDF