In this report, we assess the afternoon House FinServ Financial Institutions and Consumer Credit Subcommittee hearing yesterday on FASB’s current expected credit loss (CECL) accounting standard and the banking agencies’ proposal to implement it (see FSM Report ALLL3). Members were overwhelmingly critical of CECL with none directly supporting it. Chairman Luetkemeyer (R-MO) called on FASB to amend the standard to take into consideration existing bank capital regimes. He and other Members on both sides of the aisle also said that CECL’s requirement that banks immediately provision for loan losses will raise the cost of credit for consumers and small businesses. Rep. Brad Sherman (D-CA) argued that CECL prioritizes financial products for “Wall Street” over consumers. Many Members were skeptical that the banking agencies or FASB anticipated the interplay between CECL and regulatory-capital standards, with one witness in favor of CECL countering that the capital rules would be retroactively changed. Banking-industry witnesses strongly disputed this, arguing that likely procyclical effects needed remedy prior to implementation.
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