NCUA Board Member Rodney E. Hood Statement on the Transition to the Current Expected Credit Loss Methodology

As Prepared for Delivery on June 24, 2021

According to a report issued recently by the U.S. Department of the Treasury, “Numerous market factors relating to the COVID-19 global pandemic (including government responses) have affected the economy, financial institutions, and borrowing and lending dynamics.”

And while Treasury’s report noted the difficulty in establishing a definitive linkage between such trends and the introduction of CECL due to the effects of the pandemic, it recommended that FASB expand its efforts to consult and coordinate with the prudential regulators to understand — and take into account when considering any potential amendments to CECL — the standard’s regulatory effects on financial institutions. Treasury also recommended that FASB further study CECL’s anticipated benefits and, together with the prudential regulators, examine its application to smaller lenders.

I echo these sentiments. Indeed, for credit unions, in particular, the compliance costs associated with implementing CECL overwhelmingly exceed its benefits — especially for smaller credit unions with limited resources, expertise and available systems to help them implement the standard. At a time when credit unions should be focusing their attention on serving their members and focusing on the world post-COVID 19, the absolute last thing they need is to be burdened by a costly methodology that could have a chilling effect on lending, especially in underserved and rural communities that are the most vulnerable to the pandemic and its effects.

Today’s rule is a gradual, phased-in approach and would apply only to federally insured credit unions that adopt CECL for the fiscal years beginning on or after December 15, 2022, the deadline for CECL’s implementation. Credit unions deciding to adopt the standard for the fiscal years before that date would be ineligible for the phase-in. If credit unions do not want to phase in CECL, they should adopt the policy by December 31, 2022.

The proposal would also exempt credit unions with less than $10 million in assets from following generally accepted account principles for loan-loss reserves. Instead, these institutions could use any reasonable reserve methodology if it adequately covers known and probable loan losses. As of the last call report, this impacts 1,105 credit unions.

This final rule gives credit unions more time to prepare for the impact of CECL on their net worth levels. It will also give credit unions more flexibility to serve their members during this time of need.

But these measures can only limit some of CECL’s effects and costs. The only way to fully ameliorate the consequences of this methodology on credit unions is a complete exemption.

I respect FASB’s independence and the important role it plays in setting financial accounting and reporting standards. I also appreciate their openness to my concerns and those of the credit union community. But the industry needs a permanent exemption from CECL, and FASB should grant it now.

The imposition of the new CECL standard creates an unnecessary burden that will diminish the ability of our nation’s credit unions to serve their members and communities.

I do have one question:

1. Have we modeled how CECL will impact credit unions net worth? I realize this was highlighted in the recent Treasury report but now that COVID-19 has subsided, has anything changed?