The Independent Community Bankers of America petitioned the Financial Accounting Standards Board last week to oppose propose accounting rules that would require community banks to change how they report loan-loss reserves, loans and securities.
Signed by 4,650 community bankers and industry allies, the petition asked the FASB and Financial Accounting Foundation to alter their plan, which would replace the current “incurred loss” model with an “expected loss” model that would require banks to estimate expected losses and recognize the net present value of losses at origination.
“The OCC estimates that loan loss reserves on average will increase by 30 to 50 percent with adoption of the proposed… model with the impact on some banks much greater,” the ICBA said in its petition. “This radical increase in reserves harms community banks, the local economies they support and the overall U.S. economy.”
The ICBA said community banks lack the resources necessary to engage in expected credit loss modeling and that the proposal “creates a competitive disadvantage” for the institutions.
“(The FASB) should re-propose a simpler, more straightforward credit loss approach for all banks and bank holding companies with total consolidated assets of $10 billion or less,” the ICBA said. “The alternative credit loss model should require a community bank to recognize credit losses ratably over the life of the loan using historical credit losses experienced by the institution or by a peer group. Upon the occurrence of an incurred loss event where the occurrence of a credit loss is probable, the historical credit loss model would be replaced by the incurred loss model for the impaired asset only.”