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IPFS News Link • Central Banks/Banking

To Help Banks, Fed Delays Implementation Of "Biggest Bank Accounting Change In Decades"

• by Tyler Durden

In a nutshell, the CECL, which has been dubbed "the biggest bank accounting change in decade", would force banks to recognize expected losses on loans from the day the loan is issued, in effect forcing banks to shore up capital and to reduce the likelihood banks would need a bailout (see Boeing after instead of investing $50BN in a rainy-day fund the company instead repurchased its own shares). Critics of this proposed accounting rule - mostly banks and their shareholders - argue that such draconian demands would make them reluctant to lend to all but the strongest borrowers, and would also cripple shareholders returns (naturally investors would much rather see the bank's cash returned to them instead of held in some Plan B fund for when times get tough).

As one can imagine, the critics (i.e. the banks) quietly took the upper hand, and their lobby in Congress was so powerful that among the various measures passed on Wednesday in the Senate was the unprecedented step of trying to force a delay to the implementation of CECL. The provision, which is expected to pass a vote in the House in mere minutes, would allow banks and credit unions temporary relief from the current expected credit losses accounting standard, and would give them until Dec. 31—or when public health officials declare the pandemic over, whichever comes first—to overhaul how they tally losses on souring loans. Large publicly traded banks were supposed to adopt the new accounting standard on Jan. 1.

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