As an update to our March 25 article, the Coronavirus Aid, Relief and Economic Security (CARES) Act includes a provision allowing all financial institutions to postpone compliance with the Financial Accounting Standards Board's (FASB) standard on Current Expected Credit Losses, or CECL. The CARES Act states that these institutions are not required to comply until either the date of termination of the national emergency related to the coronavirus, or December 31, 2020. Additionally, the SEC has stated that the election of deferral would be considered in accordance with GAAP for the periods for which the deferral is available.
Many larger financial institutions have already made significant investments in systems and processes to comply with the CECL standard. These institutions have already communicated with investors about the changes and some may decide to comply. Given these new investments for compliance, it may be difficult for the larger institutions to revert to their prior models, as they may now be outdated and generate inaccurate results. They may also want to avoid the additional costs that could arise from significant maintenance. However, many mid-sized and community banks may still decide to take advantage of the option to delay CECL implementation, as they have not yet fully implemented new models.
The coronavirus has created an uncertain and volatile lending environment that may result in significant credit losses for financial institutions. The delay of CECL provides temporary relief in a time of need.
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