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Banks and Credit Unions to Demand for Negotiation on Proposed Accounting Plan

The Financial Accounting Standards Board (FASB) is planning to implement a proposal issued in 2012, which would drastically change the accounting method for accessing credit loss for both banks and credit unions. The proposed change would involve a modern Current Expected Credit Loss (CECL) model instead of the current incurred loss approach. The new accounting standards would require credit unions to hold additional capital well above their current loan loss reserves. This step is taken for avoiding losses incurred due to loan reserves.

FASB insisted all banks and credit unions to comment on the proposal in order to gauge the compliance challenges as well as impact these reforms could have on their balance sheets. The Independent Community Bankers of America and the Credit Union National Association sent a letter to FASB demanding changes in this proposal as they felt that the new accounting standards may result in a reduction in retained earnings, which could cause a reduced capital ratio.

News Characteristics

Date : Mar 23, 2016
Region : North America
Industry : Banks
Function : Regulation and Compliance
Sub-Function : Regulatory changes