WASHINGTON–CUNA is expressing its “grave concerns” to NCUA over the Financial Accounting Standards Board’s (FASB) pending rule change on accounting for credit impairment.
In a letter to NCUA, CUNA CEO Jim Nussle said the pending change, which is expected to be finalized by the end of this year, will require credit unions to utilize a current expected credit loss (CECL) model on all financial assets and financial liabilities.
“This approach will have a dramatic impact on credit unions, due primarily to a change that will require them to hold much more in reserves for future possible loan losses,” Nussle said in the letter. “While the proposal will in no way change economic reality, it will result in lower apparent capital ratios at credit unions and banks. Therefore, we urge the Office of Examination and Insurance to instruct examiners to make the appropriate adjustments in assessments of capital adequacy in order to minimize the negative impact on credit unions. To illustrate this, assume under the CECL approach a credit union’s net worth ratio falls by 50 basis points. In such an instance, an examiner who otherwise might have suggested, for example, a 9% net worth ratio should now be satisfied with 8.5%.”
Nussle wrote that beyond the direct effect the proposal will have on credit unions’ financial positions, credit unions are “very concerned with the compliance burden the proposal will impose. Our concern is that it will be extremely difficult and costly for credit unions to comply with FASB’s proposed changes, which will require extensive resources to analyze the loan portfolio on a granular level to calculate and project life-of-loan losses. Even those credit unions able to allocate the resources necessary to comply with the proposal will likely encounter major challenges since the level of data analytics that will be required is less common among credit unions, unlike much larger, complex banks.”
CUNA is calling on NCUA to work with FASB as it finalizes changes to its proposal. The trade group has already met with FASB Chair Russell Gordon to express similar considers, but CUNA said FASB appears “reluctant” to consider any major changes to the proposal.