In December of 2019, one might have said it would take a natural disaster for CECL to be delayed for those required to comply in the first quarter of 2020. Fast forward to March 13, and we have the equivalent as the President declared a national emergency related to the coronavirus/COVID-19 outbreak. In response, the banking regulators first issued a joint statement allowing banks an additional two years to absorb the impact of CECL adoption. Then, on March 19, FDIC Chair Jelena McWilliams penned a letter to the Financial Accounting Standards Board, pleading with them to delay implantation to allow banks to focus on their role in stimulating the economy. Congress then passed the CARES act with a provision on page 543 that allowed banks the option of delaying CECL implementation through the end of the national emergency or year-end, whichever occurs first.

Swift and decisive action by the banking regulators and Congress and the CECL debate has landed in a grey area. As FASB Chair Kathleen Casey noted, “The nation’s biggest banks have already made significant investments in systems and processes to comply with CECL.” She further argued, “Many have already communicated to investors their expectations about the likely impact of CECL on their upcoming financial results. Suddenly unwinding those investments and expectations will add unnecessary costs for the banks and create confusion for investors.”

Initial reactions by most in the industry were similar to Ms. Casey. Too much time and money had been spent, and if some delayed while others did not, it could result in substantial inconsistency within the industry. Furthermore, there were concerns that if certain banks opted to delay implementation, they would be punished by the market for being an outlier. Thus, while it was a nice gesture, it did not seem like a practical solution. In addition, neither the FASB nor Securities and Exchange Commission (SEC) had commented since the passage of the bill, which led some to speculate they would not look favorably on such CECL delays.

Fast forward to Friday, April 3, the chief accountant of the SEC, Saige Teotia, said the regulators would consider the deferral of CECL as allowed by the CARES act to be in accordance with Generally Accepted Accounting Principles (GAAP). It was further clarified the relaxed deadlines would be available only for the time periods spelled out in the coronavirus relief package.

With first-quarter SEC filings just days away, there appear to be more questions than answers. However, it is clear the CECL debate will continue, and the legislative branch has removed all doubt as to whether or not they are willing to intervene. Your CRI banking professionals stand ready to help.