Hood Still Pushing for CECL Exemption for Credit Unions

NCUA Chairman Rodney Hood said Tuesday he is continuing to push the Financial Accounting Standards Board to exempt credit unions from the Current Expected Credit Losses Standard (CECL), but so far, he has not succeeded.

Speaking at NAFCU’s virtual Congressional Caucus, Hood said he met earlier this week with new FASB Chairman Richard Jones to continue his campaign. “He was very adamant that we work together,” Hood said, adding that Jones recognized that the new standard could hit small credit unions particularly hard.

Under the CECL standard, institutions will have to recognize the expected lifetime losses at the time a loan or financial instrument is recorded. The effective date of CECL has been pushed back until January 2023 for credit unions.

Credit union trade groups have argued that credit unions should be exempt from the standard, but so far, the accounting board has only been willing to delay it.

Hood said he is concerned that the CECL standard will have a chilling effect on lending at smaller credit unions.

Hood also told caucus attendees that the NCUA’s Share Insurance Fund is in good condition based on modified stress tests for the credit union system.

At the same conference, NCUA Board Member Todd Harper said the NCUA is actively modeling the impact that dramatic increases in assets, falling loan demand, compressed earnings and subdued consumer confidence would have on credit unions.

“While there is great uncertainty about how the economic effects of the pandemic will unfold over the long term, we must all prepare for increased member delinquencies, loan defaults, consumer and business bankruptcies and even credit union failures,” Harper said.

Harper said that in the short term, the NCUA board must be prepared to charge a Share Insurance Fund premium if needed. “Although the Federal Credit Union Act requires board action when the equity ratio falls below 1.2%, charging premiums for share insurance during the midst of an economic downturn is less than optimal,” he said.

As a result, Harper said, he believes the NCUA should work with Congress after the pandemic in an effort to modify the Share Insurance Fund’s operations. He did not explain what changes he would favor.

However, he did add, “Doing so would create a counter-cyclical stance to allow for the accumulation of reserves during good times to cover losses in bad times without falling below the minimum statutory equity ratio.”

Harper said the agency is closely monitoring certain parts of the credit union system that are being particularly affected by the coronavirus crisis, including credit unions focused on the oil and gas industry, agriculture, state and local governments, and travel and hospitality companies.

He said the agency also is focusing supervisory efforts on credit unions with higher risk concentrations, such as those with investments in commercial real estate.

Harper said that to help credit unions weather the pandemic, all consumer credit unions should join the agency’s Central Liquidity Facility.

“By joining the CLF, you will be demonstrating the best of the cooperative nature of the credit union movement,” he said. “That is because every member who joins the CLF will exponentially increase the capacity of the CLF to provide liquidity to others within the system.”