Letter calls on agency to provide greater clarity surrounding new CECL tool and ultimately make it simpler for more credit unions to use.
The NCUA should make it clear that more credit unions may use its recently announced simplified Current Expected Credit Loss (CECL) Tool, NAFCU said last week.
“It is imperative… that as many credit unions as possible have access to and permission to use a backstop like the NCUA’s Tool,” NAFCU Regulatory Affairs Counsel James Akin wrote, in a letter to the agency.
Under the CECL standard, issued by the Financial Accounting Standards Board (FASB), financial institutions will have to recognize the expected lifetime losses at the time a loan or financial instrument is recorded. It will go into effect next year and many credit union officials have complained about the cost of implementation.
The NCUA’s CECL tool is intended for credit unions with less than $100 million in assets, although larger credit unions may choose to use it based on the discretion of their management and auditors.
Request for Greater Clarity
“To more fully aid credit unions as they transition to CECL, NAFCU requests that the NCUA provide clarity regarding the applicability of the tool for credit unions of different asset sizes,” Akin wrote.
NAFCU said the threshold should be changed to state that while the tool may be ideal for credit unions with up to $100 million in assets, it can be used by credit unions with up to $1 billion in assets.
“Making this threshold clear will make the safety net of the Simplified Tool available to credit unions under $1 billion in assets and will place the decision of whether or not to use the Tool at the discretion of credit union management and auditors,” Akin stated, noting that credit unions of all sizes have been preparing for CECL “with more than a little trepidation.”
Impact on Smaller Credit Unions
Akin said further there are many small credit unions that will not be able to easily assume the cost of outsourcing CECL compliance to a third-party vendor, calling the NCUA’s tool a “much-needed lifeline” for these institutions.
He also noted that many credit unions may be in competition for service providers to assist in CECL implementation.
“In this environment, service providers price their products and services according to the demands of the market,” he wrote. “When the market includes the very largest banks, the prices can correspondingly skyrocket, and the cost for CECL implementation services which might be perfectly reasonable for a big bank, become prohibitive for a small or midsized credit union.”
Akin added that in the interest of minimizing cost, the NCUA also should issue clear guidance about exam expectations regarding CECL model validation.
In related news, the NCUA announced it will be hosting a webinar on the simplified CECL tool on Wednesday, October 12, beginning at 2 p.m. Eastern.