FASB To Vote on Accounting Changes That Will Impact Community Bank Lending

Nov 18, 2015

New Plan Assumes All Loans Are Bad Loans the Day You Make Them

Dear Community Banker,

Community banks have less than two weeks to express their concerns with new accounting standards that would require every community bank in the country to change how it accounts for loan-loss reserves. Today we are calling on you to speak out to the Financial Accounting Standards Board with ICBA’s customizable grassroots letter.

The new Current Expected Credit Loss (CECL) accounting standards will be taken up for a final FASB vote on Dec. 2, so time is of the essence in reaching out in opposition. These standards will require all community banks to set aside reserves the day the loan or investment is made by requiring you to forecast how much you will lose over the life of the financial instrument. In other words, the adage that “all loans are good loans the day you make them” is no longer acceptable. Regulators have already said that under this new standard, banks will need to increase their ALLL at least 30 percent to 50 percent by transferring loan-supporting capital to the loan-loss reserve.

Not only is this flawed accounting that will require local institutions to institute and maintain expensive credit modeling systems, which will restrict the flow of credit, it is also antithetical to the community banking model itself. In short, it removes your discretion to make localized financial decisions and penalizes you for investing in loans to your local community.

While ICBA and the nation’s community banks have made progress in recent years in opening FASB’s eyes to the negative effect of this plan on Main Street communities, we need to make a final grassroots push ahead of the upcoming vote. Through ICBA’s customizable letter to FASB, community bankers can advocate our alternative plan for institutions with less than $10 billion in assets that would base loan-loss provisions on historical losses.

With FASB expected to vote in a matter of days and release its final standards early next year, now is the time for community bankers to weigh in against the FASB plan and for our common-sense alternative. You can make a difference, but you must be heard!

Once you send your customizable letter to FASB, you will receive an email encouraging you to forward your letter to your primary regulator. Please take that extra step and email a copy of your letter to your primary regulator. It is important that your regulators also hear from you!

Contact FASB and Your Regulator Today!