FASB to Hold Forum on Community Bankers' Loan Loss Concerns

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By Steve Burkholder

Jan. 7 — The Financial Accounting Standards Board plans to hold a public roundtable Feb. 4 partly to address community bankers' concerns about the potential impacts of FASB's upcoming rules on loan losses and other credit impairments.

The accounting board hopes to issue the rules by March 31. FASB announced the roundtable—which will be attended by all seven members of the board—Jan. 7, the same day it received a critical letter from the Independent Community Bankers of America. ICBA said that FASB “lacks understanding of community banks.”

Also expected to attend the roundtable, besides delegates from community bank organizations, are auditors and regulators, a FASB spokeswoman said. FASB has had ongoing dialogues with ICBA and other bank groups throughout the long rulemaking process.

‘Disregard' for Community Banks

In the Jan. 7 letter to FASB's chairman, ICBA's president, Camden Fine, criticized the board for what he called its continued “disregard” for “a community bank's inability” to handle the board's prescription for booking loan losses and accompanying allowances.

In addition, Fine told FASB chief Russell Golden that ICBA had sought to educate the board on, among other things, the impact that the FASB model for impairment would have on smaller banks' regulatory capital, retained earnings, effective recognition of credit losses, and lending capacity.

Community Banks and the Crisis

Fine also stated its disagreement with what it called Golden's view “that the relatively small number of community bank failures resulting” from the financial crisis of 2008-2009 “were caused by the limitations of the current existing credit loss model.”

Current accounting for loan losses is based on incurred losses. That reliance has been widely blamed for the recording of loan losses “too little, too late,” in contributing to the financial meltdown. The perceived problem spurred action by accounting rulemakers on impairment.

In a Dec. 10 speech, FASB's Golden sought to correct what he called “troubling misconceptions or concerns” being circulated about FASB's planned impairment standard

Golden described one misconception as the new rules requiring “businesses to develop and install costly, complex new systems” to account for credit losses.

“That's simply not true,” Golden said in his conference speech. “In the underwriting process, most banks—including small community banks—already make some kind of lifetime loss assessment.”

FASB Denies Slander

ICBA said Dec. 16 the comments from FASB had committed “slander” against community banks by suggesting that such banks had caused the financial crisis. In a response the same day, a FASB spokeswoman said that Golden was “highlighting the limitation of the current accounting standard.”

“Mr. Golden's discussion of loan impairment was not intended in any way to suggest that community banks were the cause of the financial crisis,” the spokeswoman, Christine Klimek, said.

To contact the reporter on this story: Steve Burkholder in Norwalk, Conn., at sburkholder@bna.com

To contact the editor responsible for this story: Laura Tieger Salisbury at lsalisbury@bna.com