MADISON, Wis.—The World Council of Credit Unions has sent a comment letter to the Basel Committee in response to its proposal on “Expected Credit Losses,” which would require U.S. credit unions to adopt the “expected credit loss” approach to establishing reserves for credit losses.
Under U.S. GAAP, the “expected credit losses” approach is the FASB’s proposed “Current Expected Credit Losses” (CECL), to which CUNA and other organizations have already opposition.
As WOCCU noted, specifically the Basel proposal states that financial institutions should follow the expected credit loss model for provisioning the allowance for loan losses, rather than“incurred loss” approach that is currently used in the United States and elsewhere. The proposal also doesn’t state that an institution should adopt any particular set of expected credit loss rules, but CECL is the only expected credit loss approach proposed under U.S. GAAP, WOCCU said.
WOCCU said it also strongly opposes another aspect of the proposal that allows less complex financial institutions “to adopt approaches commensurate with the size, nature and complexity of their lending exposures” that would be more proportional to the standard CECL or Basel rules.
“Without the proportionality concept, many less complex financial institutions, including most credit unions, would likely find it difficult to comply with all of the aspects of this guidance,” said WOCCU in its letter. “For example, many credit unions would likely find it prohibitively expensive to develop expected credit loss (ECL) computer modeling of the complexity envisioned by the guidance for internationally active banks set forth…”
WOCCU said it does support the Committee’s proposed approach of giving a credit union’s or bank’s management the primary role in determining the institution’s credit risk management strategy and policies in a manner consistent with applicable accounting rules.