The Financial Accounting Standards Board is getting an earful from credit unions and trade associations. Even NCUA Chairman Debbie Matz, like others, is concerned about the accounting board's exposure draft that would require financial institutions to base loan-loss allocations on expected losses, rather than incurred losses. In addition to requiring complex economic modeling, the standard would also require the allowance for loan and lease losses to cover the entire life of the loan at the time of funding.
Matz wrote in a comment letter that FASB's proposed credit-loss accounting standard presents safety and soundness concerns for small and medium-sized credit unions. Industry experts estimate the accounting standard could double or even triple current allowances for loan and lease losses.
"I urge the FASB to consider the unintended consequences of enacting financial reporting rules that may unduly impact the financial performance of small and medium-sized credit unions and discourage these institutions from making loans to low-income borrowers, particularly during times of economic distress," Matz wrote. "Since credit unions were the only federally insured financial institutions to increase lending throughout the recent economic downturn, discouraging credit union lending would negative impact consumers going forward."
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