FDIC’s McWilliams urges accounting group to postpone CECL implementation, given health crisis

Certain accounting standards – including those related to current expected credit losses (CECL) – should be either relaxed or postponed due to the financial impact of the coronavirus impact, the board chairman of the federal insurer of bank deposits said Thursday in a letter.

In the letter to the Financial Accounting Standards Board (FASB), Federal Deposit Insurance Corporation (FDIC) Chairman Jelena McWilliams urged the accounting group to allow banks that are now subject to CECL to have the option to postpone further implementation of the accounting standard. (The CECL accounting standard, which replaces the allowance for loan and lease losses, or ALLL, focuses on estimation of expected losses over the life of loans rather than incurred losses.)

McWillams said postponing further implementation “will allow these institutions to better focus on supporting lending to creditworthy households and businesses, which will support the return of our economy to health.”

The FDIC chairman also asked the accounting standards group to impose a moratorium on the effective date of the CECL standard for institutions such as community banks that are not yet – but will be – required to apply the standard. (Other financials, such as credit unions, are in the same boat.) McWilliams said doing so will “allow these financial institutions to focus on immediate business challenges relating to the impacts of the current pandemic and its effect on the financial system.”

“Transitioning to CECL for smaller institutions is a significant effort in both financial and staffing commitment,” McWilliams wrote. “Institutions under current conditions need to apply their full efforts, focus, and resources toward working to ensure the safety of their staff, customers, and local communities.”

Also in the letter, McWilliams urged the accounting group to exclude coronavirus (COVID-19)-related modifications from being considered a concession when determining a troubled debt restructuring (TDR) classification. “We have encouraged the industry to work with borrowers who may be impacted by the COVID-19 virus, including by offering loan modifications and payment extensions,” McWilliams wrote. “Institutions want to assist their customers, but are worried about a modification being classified as a TDR. I believe a public statement by the F ASB will help encourage banks to work with their customers through this period.”

FDIC Chairman Urges FASB to Delay Certain Accounting Rules Amid Pandemic