Independent Banker - March 2019 - 49

Next: Final Treasury rule benefits community banks
negative impact of CECL on community banks,
we have been instrumental in making significant
progress since FASB began proposing an expected-loss
impairment model in the wake of the
financial crisis.
community banker meeting with the full FASB
board were granted, and Tim Zimmerman, CEO
of Standard Bank in Monroeville, Pa., joined a
FASB council on CECL.
ICBA has been meeting with FASB officials
since 2011 on post-crisis accounting for financial
instruments. In January 2013, FASB proposed
a single " expected credit loss " measurement for
recognizing credit losses with loss forecasts based
on a bank's estimates of future loss probabilities.
ICBA strongly opposed the proposal, noting that
it would force community banks to record a provision
for credit losses much too early, radically
change community bank accounting methods,
require complex and expensive modeling systems,
sharply increase the cost of lending and
constrict the flow of credit.
In response, we introduced our own alternative
impairment model in June 2013 that would
rely on historical loss experience, place less
strain on community banks and better match
loss measurements with the economic cycle.
Under the proposal, losses would be recognized
over the effective life of the financial instrument
to better reflect the fact that losses generally
occur later in the life of the loan or security. That
December, ICBA delivered a petition with 4,650
signatures urging FASB to withdraw its CECL
plan, followed by a letter-writing campaign and
roundtable discussion at FASB headquarters the
next spring.
We really began making progress in the winter
of 2015-2016 when comments from FASB chairman
Russell Golden suggested that community
banks contributed to the financial crisis-highlighting
a real and troubling misconception at the
standards-setter. Those comments drew a strong
reaction from ICBA, which set the record straight
by noting that the financial collapse originated
on Wall Street, and that community banks fared
well due to the relationship banking model that
FASB's loan-loss proposal directly contradicts.
Golden's comments also drew a significant backlash
in Washington, with a bipartisan group of 62
members of Congress echoing ICBA's concerns
with CECL in a joint letter to FASB.
The uproar offered an opening for needed
reforms, and ICBA wasted no time in making the
most of it. Amid the backlash, ICBA's calls for a
This was an important step, because it allowed
ICBA to educate FASB on what a community
bank really is, correct its misconceptions about
the relationship between the Wall Street crisis
and Main Street institutions, and change the
narrative for good. As a result, FASB was much
better prepared to produce an accounting standard
that allowed these banks to continue serving
their communities.
Ultimately, the board revised the standard to
make it more flexible and scalable for community
banks. The revised standard confirmed that
complex models are not required, calculations
using spreadsheets are acceptable and community
banks can use granular local information for
forward-looking purposes.
Speaking out
Throughout the campaign, ICBA has maintained
close contact with federal banking regulators,
which projected that the initial proposed standard
would have required banks to increase their
allowances for loan losses by up to 50 percent.
In implementing the revised plan, regulators
have said they don't expect community banks to
need to adopt complex modeling techniques or
engage third-party service providers. They also
recently finalized a three-year transition period
for recognizing the impact on regulatory capital
of changes in credit losses due to a bank's adoption
of CECL.
Quick stat
4,650
community
bankers signed
an ICBA petition
to the Financial
Accounting
Standards Board
supporting the
withdrawal of its
CECL plan
Although much has been accomplished to
improve the standard for community banks,
ICBA continues to express concerns to the banking
regulators and FASB about the transition
costs of CECL for community banks. We advocated
a five-year transition period rather than a
three-year period, and we will continue to urge
regulators to include loan-loss reserves as part of
tier-one capital, particularly once CECL is fully
implemented.
So, while ICBA works to build on our improvements
to the CECL standard achieved over years
of effort, community banks can take comfort in
knowing that our work so far has led to meaningful
gains.
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Independent Banker - March 2019

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