Bank regulators have rolled back the Jan. 1 accounting standard known as “current expected credit loss” (CECL) in an effort to bolster loans in the wake of the coronavirus, the Wall Street Journal reported on Friday (March 27).
The CECL accounting standard focuses on estimated losses over the life of a loan; the previous standard still used by many lenders relies on incurred losses. Financial institutions now have two more years before converting to CECL.
National bank regulators — The Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency — are all on board with using the “new methodology for measuring counterparty credit risk in derivatives transactions.”
In a letter last week to the Financial Accounting Standards Board, FDIC Chairman Jelena McWilliams requested a delay because of the economic turmoil the COVID-19 pandemic has caused may force “banks to face higher-than-anticipated increases in credit-loss allowances at a time when they should be focused on lending to businesses and consumers,” the WSJ reported the letter said.
The $2.2 trillion stimulus package passed last week included an allowance for banks to put off compliance with the credit losses accounting standard until either the end of the year or the end of the coronavirus national emergency, whichever comes earlier.