Today, the Federal Deposit Insurance Corporation (FDIC) Chair, Jelena McWilliams, took an important step to ensure financial institutions are able to lend to businesses and consumers impacted by the coronavirus (COVID-19) by pushing for a delay in implementing the ill-advised Current Expected Credit Losses (CECL) standard.
Key facts:
- Today, FDIC Chair Jelena McWilliams sent a letter to the Financial Accounting Standards Board (FASB) urging a delay in transitions to the Current Expected Credit Losses (CECL) standard.
- Delaying the implementation of CECL will free up billions of dollars for financial institutions to lend to small business and consumers in need.
- Last week, Ranking Republican of the Subcommittee on Consumer Protection and Financial Institutions, Blaine Luetkemeyer (MO-3), introduced a bill to delay the implementation of this ill-advised accounting standard.
ICYMI:
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FDIC Seeks Breathing Room For Banks To Help Small Businesses Survive The Coronavirus
By Antoine Gara | March 19, 2020
The Federal Deposit Insurance Corporation is calling for a delay and rollback of an arcane bank accounting rule, which has loomed as a large dark cloud over firms seeking to lend money into an economy quickly sliding into recession due to the coronavirus pandemic. The FDIC’s potential regulatory relief could help banks in their current mission—which is to lend, lend, lend—as the economy shuts down and businesses large-and-small crave emergency capital to survive.
FDIC chairman Jelena McWilliams, on Thursday, asked the Financial Accounting Standards Board to either delay and rollback its new current expected credit losses (CECL) accounting rules. The regulation, which was just beginning to be phased in by large lenders and regional lenders, is a far more stringent and punitive accounting of potential losses inside of bank loan portfolios, particularly in the event of a recession.
CECL has been the talk of bank CEOs, investors, and analysts for many months because it is expected to lead firms to account for far higher potential credit losses. It loomed as enormous accounting shock, which might cause lenders to stay on the sidelines or waste precious capital building provisions. But the recession is here now, and businesses are looking at a black hole in their treasury accounts that needs to be filled.
The mandate in Washington is for banks to do whatever it takes to combat this economic crisis with little precedent. They are being flooded with cash from the Federal Reserve and being asked to draw down their capital and liquidity buffers as a way to pump as much money into the economy as they responsibly can. A delay of CECL may be a breakthrough in opening up new flows of credit, and it is likely to shore up flagging confidence on Wall Street and inside bank boardrooms. Furthermore, it may free banks to extend loans, forbear on customers who temporarily cannot make payments, and help them restructure burdensome debts.
Now, the FDIC wants to remove the cloud from the financial sector.
In a letter to the Financial Accounting Standards Board, the administrator of CECL, the FDIC argued that helping the economy was bigger priority than accounting for a rainy day that’s already here.
Read the full article in Forbes here.
Visit Financial Services Committee Republicans’ website for additional resources and updates on efforts to mitigate the economic impact of coronavirus on consumers.