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ICBA Delivers Petition Opposing Costly Accounting Proposal

Washington, D.C. (Dec. 18, 2013)—The Independent Community Bankers of America® (ICBA) today delivered to the Financial Accounting Standards Board a petition opposing proposed accounting standards that would require all community banks to revise how they account for their loan-loss reserves, loans and securities. The petition includes signatures from 4,650 community bankers and allies urging the Financial Accounting Foundation and the Financial Accounting Standards Board to withdraw their plan.

“Community banks should not be required to front load credit losses when originating portfolio loans,” the petition says. “Any credit-loss model that does not consider the unique nature of community bank underwriting and its common-sense approach to assessing risk in the local community creates a competitive disadvantage for these institutions.”

The FAF-FASB proposal would implement a single approach for recognizing credit losses on loans, securities and trade receivables. It would replace the current “incurred loss” model with an “expected loss” model that would require banks to estimate expected credit losses and recognize the net present value of those losses at origination.

The proposal would require complex modeling and compel banks to recognize losses much earlier than necessary in the credit-loss cycle, penalizing community banks for investing in loans and securities. The Office of the Comptroller of the Currency estimates that loan-loss reserves on average will increase by 30-50 percent with adoption of the proposal.

ICBA’s petition urges the regulators to re-propose a simpler and more straightforward proposal that would not harm the nation’s community banks. The alternative credit-loss model should require community banks to recognize credit losses ratably over the life of the loan using historical credit losses experienced by the institution or by a peer group, the petition notes. Upon the occurrence of an incurred-loss event where the occurrence of a credit loss is probable, the historical credit-loss model would be replaced by the incurred-loss model for the impaired asset only.

For more information and to read the petition, visit the ICBA website.

About ICBA
The Independent Community Bankers of America®, the nation’s voice for nearly 7,000 community banks of all sizes and charter types, is dedicated exclusively to representing the interests of the community banking industry and its membership through effective advocacy, best-in-class education and high-quality products and services. For more information, visit www.icba.org.

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