FASB Moves Forward with CECL, Delays Implementation April 28, 2016
On Wednesday, the Financial Accounting Standards Board voted to move forward with its Current Expected Credit Loss standard, but agreed to push the implementation timeline back by one year after a request by AmBA. Banks that file with the Securities and Exchange Commission will now have until 2020 to implement CECL, while non-SEC filers will have until 2021. Early adoption will be permitted starting in 2019.
Prior to the vote, FASB board members discussed the challenges banks will face during implementation. Although a FASB member believed that Excel spreadsheets could be used by community banks to cut costs, the board also acknowledged many difficulties banks will have in implementing CECL -- such as estimating the effects of prepayments and credit migration in the context of future forecasts. Ultimately, however, the board members concluded the benefits of earlier loss recognition outweigh the costs.
FASB will now move forward with a “ballot draft” of the final standard that must be approved by the board prior to release, which is still expected to be in June. Upon the issuance of the final standard, ABA will host webinars and organize peer groups to assist bankers in working through the implementation process. Click here to read more.
FDIC Issues Final Rule on Small Bank Deposit Insurance April 27, 2016
The FDIC has approved a final rule for assessing deposit insurance premiums on banks with under $10 billion in assets. Under the rule, assessment rates will be calculated using financial measures and supervisory ratings derived from a statistical model estimating the probability of failure over three years.
The final rule eliminates the risk categories currently used for banks that do not have a rating of CAMELS I or II, and instead bases assessment rates for all banks on a standardized formula. As a result, deterioration of a bank’s capital or supervisory rating will not lead to a jump in its assessment rate, only to a somewhat higher rate, ABA pointed out in a staff analysis. In addition, the rule adopts fairer standards for assessing growth; assets would have to grow more than 10 percent over a one-year period to trigger higher assessments, meaning that fewer banks will be penalized for healthy, well-managed growth.
The rule does not alter the loan portfolio factor -- something ABA criticized previously -- but does cap assessment rates based on CAMELS ratings. This cap could limit the impact of the loan portfolio factor and the weighting for the tier 1 core capital ratio (which is given a much higher rating in the revised formula).
The FDIC estimates that 93 percent of small banks will see somewhat lower assessments as a result of the final rule, while the remaining 7 percent will see increases. The final rule will take effect beginning the quarter after the FDIC’s insurance fund reaches 1.15 percent, which is expected to occur in the third quarter.
Click here to read the Final Rule. Click here to read AmBA's Staff Analysis.
AmBA Commends CFPB Action on QM Coverage for Rural, Underserved Areas April 27, 2016
In a comment letter to the Consumer Financial Protection Bureau on Tuesday, AmBA expressed its support for the CFPB’s recent interim final rule that broadened the availability of certain special provisions for small creditors operating in rural or underserved areas. Under the interim rule, small creditors -- or banks that made no more than 2,000 first-lien covered transactions and have less than $2 billion in assets -- will be eligible for special Qualified Mortgage provisions if they originate at least one covered mortgage loan on a property located in a rural or underserved area in the prior calendar year.
AmBA recommended that the bureau consider increasing the asset threshold limit to be considered a “small creditor” from $2 billion to $10 billion to allow more small institutions to take advantage of the regulatory relief the rule provides.
The association also urged the CFPB to revise the language of the rule to allow creditors to begin taking advantage of special QM provisions immediately after beginning to lend in a rural or underserved area in 2016. Without this clarification, AmBA pointed out, banks that only recently began lending in rural or underserved markets would have to wait until the end of the calendar year to take advantage of the QM provisions.
Boozman: Wholesale Reg Relief Unlikely in Next Appropriations Bill April 21, 2016
In an interview with Politico on Wednesday, Senate Financial Services Appropriations Subcommittee chairman John Boozman (R-Ark.) said that he plans to continue seeking bipartisan support to pass meaningful regulatory relief following an unsuccessful effort in 2015 led by Sen. Richard Shelby (R-Ala.). Boozman said the subcommittee has been working closely with Shelby to determine what regulatory relief provisions to include in this year’s appropriations bill, but noted that “we’re not going to stick the entire banking bill in or anything like that.”
As the subcommittee continues to search for ways to ease the regulatory burden of Dodd-Frank, Boozman acknowledged that finding harmony with Democrats continues to be a challenge. “[T]here’s a lot of comments about how we need to protect our community banks,” he said, “but when it comes down to voting, it’s really difficult to get those votes.”
AmBA Urges Regulators to Consider Costs, Benefits of CECL April 21, 2016
On Wednesday, AmBA sent a letter urging federal banking regulators to take an active part in the Financial Accounting Standards Board’s cost-benefit analysis of the proposed Current Expected Credit Loss model for loan impairment accounting.
The association called for a robust analysis that would go beyond what satisfies the minimum requirements for performing a CECL estimate and include what will most likely be used by banks in real life with respect to gathering data, making forecasts and auditing. ABA believes this will involve significant and ongoing investment by banks of all sizes.
AmBA also called for regulators to reconsider regulatory capital requirements, noting that the uncertainty surrounding the long-term forecasts required by CECL may require additional capital buffers. “Such buffers could significantly reduce the amount of capital a bank may deploy to its local community,” the letter said.
FASB is expected to complete its cost-benefit analysis in the coming weeks, and -- if approved -- issue the final standard this summer. Click here to read the letter.
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