As Prepared for Delivery on June 24, 2021
Thank you, Alison and Ariel for your presentation.
First, I would like to recognize Board Member Hood, and former Board Member McWatters for their efforts with the Financial Accounting Standards Board (FASB) to mitigate the tremendous burden the accounting transition to Current Expected Credit Loss methodology (CECL) places on credit unions and other community financial institutions.
I understand board member Hood along with former board member McWatters went to great lengths to urge the FASB not to impose a one-size fits all rule. Mr. McWatters along with his NCUA colleagues Larry Fazio and Alison Clark met personally with the then Chair of FASB, Russ Golden and the primary architect of CECL, Hal Schroeder, to present potential options. I also learned of the continuing efforts by Alison Clark and other staff to eliminate or limit the burden of complying with this rule. I’d like to thank Alison, Larry and staff for their ongoing efforts.
Unfortunately, this board does not have the power to exempt any credit unions or redraft the rule to fit the size and scope of credit unions. Today we are tasked with approving the phase-in process for credit unions.
The origin of CECL did not start with credit unions, as it was born from the financial crisis of 2008-09. I empathize with credit unions that feel they’re paying another cost for problems created by others.
Credit unions are not only disproportionately smaller, but they’re structured differently than institutions where this kind of accounting will protect shareholders. As financial cooperatives, credit unions have no shareholders. There is no one demanding that management take risks to create a return on their investment. The member-owners are the shareholders. It’s their money that will be spent to comply with this rule.
I genuinely am interested in seeing anything information about if the benefits of CECL outweigh the costs to credit unions, particularly for smaller credit unions. This rule does have a possible exemption for credit unions with assets under $10 million. But as of now, I haven’t been able to find any explanation for why, say, credit unions under $100 million couldn’t be exempted.
CECL comes with major costs in time, effort and regulatory risk. And a general rule for regulators, and in life, is that anything with major costs should have major benefits. Yet I believe no one at NCUA is saying that, due to CECL, our Share Insurance Fund will now have lower projected losses.
That said, I will be supporting this rule today because it eases the burden of the day one adjustment. It spreads the accounting charge to regulatory capital over a three-year period giving affected credit unions time to replace capital if needed. It also allows the board to exercise its discretion to exempt credit unions under $10M in assets from GAAP.
In closing, I urge staff to continue their efforts to work with credit unions in complying with this mandate.
Thank you, Mr. Chairman. This concludes my remarks.