Lawmakers Question FASB on Upcoming Loan-Loss Standard

By Steve Burkholder

Feb. 5 — The Financial Accounting Standards Board is studying a recent letter from 62 members of the U.S. House of Representatives that echoes the concerns of a leading group of community bankers about the potential impact of a forthcoming standard on loan losses and other credit impairments.

“The FASB is reviewing the letter submitted by members of Congress about our upcoming standard on accounting for credit losses,” a FASB spokeswoman told Bloomberg BNA Feb 5. “As with all stakeholder feedback, we will carefully consider the input we receive from Congress on the upcoming standard.”

In their Jan. 29 letter, the lawmakers conveyed concerns about potential adverse effects of the planned accounting rules that mirror the worries expressed by members of Independent Community Bankers of America (ICBA).

Concerns Voiced at Feb. 4 Forum

Those concerns were voiced at a Feb. 4 forum of bankers with FASB. Banking, securities and auditing regulators, along with auditors, also attended the meeting.

Delegates from ICBA and its member banks have strongly criticized FASB and its impending standard on impairment of financial instruments since last year. The board plans to issue the final rules in the second quarter, after it holds one more meeting. The benefits and costs of the standard, along with other issues, will be weighed at that meeting, to be held in the first quarter.

The standard is expected to cause thousands of U.S. banks to increase their loan loss reserves to create more timely and adequate provisions for expected losses over the duration of loans. ICBA has argued that the standard will have adverse business impacts on small banks and lead to complex reporting burdens.

The standard—pursued jointly for many years with the International Accounting Standards Board—was spurred in part by banks around the world recording “too little, too late” in the way of loan losses. A majority of FASB believes the standard will improve information for investors and other users of financial statements.

At the Feb. 4 roundtable meeting, top accountants from the federal banking agencies sought to allay the concerns of community bankers about regulators' expectations in their oversight of small banks. The agencies' accountants said that they would look for a “scalable” application of the planned accounting standard, and one that is practical and simple, matching the size of each financial institution and its operations.

Lawmakers Urge ‘Utmost Caution.'

The group of House legislators urged FASB to use “the utmost caution” in moving to a final standard, which is expected to occur within a few months.

The impending standard on credit impairment, including banks' reporting on loan losses, “has the potential to irreversibly damage community banks' and credit unions' ability to continue to adequately serve their customers/members and communities and sustain the economic recovery,” according to the lawmakers' letter, which was written under the letterhead of Rep. Scott Tipton (R-Colo.), a member of the House Financial Services Committee and a lead signer.

A representative of ICBA, which lobbied Congress with representatives of credit unions for the letter to FASB, told Bloomberg BNA Feb. 5 that Tipton and Rep. Patrick Murphy (D-Fla.), also a member of the financial services panel, wrote the letter.

The bipartisan group of 62 House members also offered a list of questions to FASB. They included whether the board would consider, before finalizing the standard, “its impact on general credit availability and credit growth” and “more practical alternatives to a complex modeling requirement.”

At the Feb. 4 meeting, FASB members and a senior staff accountant suggested that the board didn't have in mind prescribing complex, computer-driven methods for smaller banks to derive reasonable, supportable estimates of expected loan losses.

‘Re-exposure' of Planned Rules Not Likely

At the forum, at least two participants from the banking community urged FASB to “re-expose”—meaning to reconsider and repropose—the planned final standard. Such action by the board isn't likely, as it and IASB have been under pressure from regulators for several years to issue the rules on credit impairment. The standard has been many years in the making.

IASB issued its different version of a standard for credit impairment in July 2014 .

The new FASB standard is to be generally effective in January 2019. Many smaller banks—those not deemed public business entities—will have an added year to apply it.

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

To contact the editor responsible for this story: Steven Marcy at smarcy@bna.com

For More Information

The lawmakers' letter to FASB (#147) is available at http://www.fasb.org/jsp/FASB/CommentLetter_C/CommentLetterPage&cid=1218220137090&project_id=AFI-UNS&page_number=2.