WILLIAM ISAAC’S PUBLISHED WORK

Bill Isaac has authored hundreds of articles in top publications and has frequently testified before Congress.

RECENT PUBLISHED WORK

columns from William Isaac in top financial publications

BankThink Strip FASB of its powers by William M. Isaac, Howard P. Milstein published by American Banker

BankThink Strip FASB of its powers by William M. Isaac, Howard P. Milstein published by American Banker

June 12, 2020

The latest Financial Accounting Standards Board debacle may finally cause the government to step in and end its monopoly power to dictate accounting standards on banks and financial regulators.

The most recent step in that direction was a June 4 letter from a bipartisan group of four U.S. senators to Treasury Secretary Steven Mnuchin, in his role as chairman of the Financial Stability Oversight Council.

The letter requests that the oversight council conduct a study on lending and the economic consequences of FASB’s new requirement that insured depository institutions adopt (a senseless) form of mark-to-market accounting rules called the current expected credit losses, or CECL.

The CECL requires banks to estimate credit losses over the life of a loan, and to book those losses upfront. Thus, a bank that makes 30-year mortgage loans would have to estimate and book its losses on that portfolio on day one.

How the U.S. Fought the 1957 Flu Pandemic by Emily Moon published by Smithsonian Magazine, June 2020

How the U.S. Fought the 1957 Flu Pandemic by Emily Moon published by Smithsonian Magazine, June 2020

June 12, 2020

[Everyone knows that the COVID-19 virus the world has been suffering through is the first global pandemic since the Spanish Flu in 1918.  So we’re talking about an event that perhaps occurs only once every century, right?  Everybody knows this is a once per century event, Right?  What if I told you that is not right?  What if I told you we had another pandemic that no one seems to remember a little more than 50 years ago?  I was 14 years old in 1957, so surely I would remember such an event.  Who could not?  Well, the answer seems to be that nearly all of us don’t remember it.  Pause for a moment from the daily grind and read this article from the Smithsonian Magazine of June 2020.]

The story of the medical researcher whose quick action protected millions of Americans from a new contagion

In April 1957, a new strain of lethal respiratory virus emerged in East Asia, caught local health authorities by surprise and eventually killed masses of people worldwide. Today, in the age of Covid-19, that scenario sounds frighteningly familiar – with one key difference. Maurice Hilleman, an American microbiologist then running influenza monitoring efforts at the Walter Reed Army Institute of Research, saw the problem coming and prepared the Unites States ahead of time.  “This is the pandemic,” he recalled. “It’s here.”

Hilleman arranged for the U.S. military to ship samples of the pathogen, believed to be a novel influenza virus. From Hong Kong to his lab in Washington D.C.  For five days and nights, his team tested it against blood from thousands of Americans. They found that this strain, H2N2, was unlike any flu that humans were knows to have encountered.  When it reached the United Stated, no one would be immune.

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Isaac | Milstein Letter to Congress, May 5, 2020

Isaac | Milstein Letter to Congress, May 5, 2020

May 5, 2020

 

 

As our nation’s banking institutions, and particularly small banks, face unprecedented strain in the midst of the COVID-19 pandemic, we thought you might be interested in an article we recently wrote for American Banker on Congress’s recent decision to freeze the implementation of a new accounting standard on small banks – the Current Expected Credit Losses standard, or CECL.

This counterproductive mark-to-market accounting standard that was put forth by FASB (a private entity) required banks to estimate credit losses over the life of its loan (including 30-year mortgages) and book those supposed losses immediately. Congress wisely delayed implementation of CECL for small banks (the biggest banks have already been required to do it during the current year), but we argue more is needed. CECL has the perverse impact of freezing banks’ ability to lend just as our economy needs it most. It should be repealed, and no private entity like FASB should have the ability to force new accounting standards on our nation’s financial institutions without proper oversight of Congress, the Federal banking agencies, and the SEC.

Our full article follows. We are happy to discuss in further detail as appropriate.

Best regards, and hope you are safe and healthy in these challenging times,

William M. Isaac
Co-Chairman
Howard P. Milstein
Co-Chairman
 

Congress was right to freeze CECL
by Willam M. Isaac and Howard P. Milstein

The Financial Accounting Standards Board is at it again.

The counterproductive and harmful mark-to-market accounting rules imposed by FASB led to the near-collapse of the global economy during the financial crisis, and to the $700 billion Troubled Asset Relief Program.

Now, FASB wants to require banks to adopt another form of mark-to-market accounting rules known as the Current Expected Credit Losses standard, or CECL.

CECL requires banks to estimate their credit losses over the life the loans, and book the losses upfront. Thus, a bank that makes 30-year mortgage loans would have to estimate and book its losses on that portfolio on day one.

This policy is terribly wrongheaded. And we fervently disagree with a recent op-ed in American Banker that urged Congress to impose CECL on the entire banking industry as soon as possible.

Lawmakers recently delayed the CECL standard for certain banks as part of its response to the coronavirus pandemic and concerns about the financial constraints that implementation would create amid a crisis.

It is essential that all bank regulation be countercyclical. CECL is the opposite.

In good times, banks will be unrestrained in their lending because their models will underestimate probable losses. In bad times — like we are in right now — the models will demand excessive capital and reserves, causing banks to withdraw from lending at the worst possible time, when it’s needed most.

The larger banks have already implemented CECL, while the smaller banks received a little more time to comply. The delay granted by Congress for the smaller banks speaks volumes about what is wrong with CECL.

If CECL were not hurtful to bank lending in troubled times, lawmakers would not have further delayed small-bank compliance. Not only was Congress spot-on correct in delaying implementation of the CECL for small banks, it should immediately take whatever steps necessary to repeal CECL’s application to larger banks.

Tom Brown, a veteran bank stock analyst and hedge fund manager, recently pointed out CECL’s impact on two of the nation’s largest banks, JPMorgan Chase and Bank of America.

At the end of 2019, Chase’s loan loss reserve was $14.3 billion, “and not a single analyst or investor questioned its adequacy,” Brown said in his April 17 newsletter.

Chase then adopted the CECL standard Jan. 1, resulting in a 30% increase in its loan-loss reserve, by $4.3 billion.

“Then in March, the global economy stopped in its tracks, and JPMorgan had to estimate the lifetime losses in its loan portfolio using an entirely different set of economic assumptions, based on what it thinks will happen in an environment that no one has ever experienced,” Brown said.

The combination of the coronavirus pandemic and CECL standard caused a 37% jump in Chase’s loan loss reserves, by $6.8 billion.

Bank of America, however, was “the best at avoiding” analysts’ questions about economic assumptions used in its forecasting, Brown noted.

The bank refused to disclose line-item forecasts, such as the assumed peak unemployment rate, because there are so many variables in its model and comparisons to other large banks would be misleading.

Home Bancshares Inc. CEO John Allison also expressed frustrations that the CECL standard was being implemented during a crisis.

“In the midst of a pandemic, with thousands of people dying and hundreds of thousand people infected, and Americans locked in their homes, the accounting clowns show up with a new circus called CECL,” Allison said during his company’s latest earning call. “Total disregard for the mess they created and [it will] create an uncertainty in the market. The circus genie should have never been allowed to get out of the bottle.”

It is past time for Congress to intervene and strip FASB of its self-anointed authority to dictate generally accepted accounting principles without any meaningful oversight from the government.

The FASB is a private entity, created by the accounting firms in 1973. It obtains its funding from the accounting industry. Its seven-member board is selected by the accounting industry, and it is not subject to meaningful government regulation.

This system cannot stay in place any longer. The Securities and Exchange Commission should set the accounting standards for the banking industry. There should also be a requirement that the SEC formally seek and consider the views of the public. This includes input from the accounting industry, the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency before adopting or amending any rules.

William M. Isaac, a former chairman of the Federal Deposit Insurance Corp. and Fifth Third Bancorp, is co-chairman of the Isaac-Milstein Group. 

Howard P. Milstein is chairman of Emigrant Bank and New York Private Bank & Trust. He is also co-chairman of the Isaac-Milstein Group.

Source: https://www.americanbanker.com/opinion/congress-was-right-to-freeze-cecl

BankThink Congress was right to freeze CECL by William M. Isaac, Howard P. Milstein

BankThink Congress was right to freeze CECL by William M. Isaac, Howard P. Milstein

April 24, 2020

The Financial Accounting Standards Board is at it again.

The counterproductive and harmful mark-to-market accounting rules imposed by FASB led to the near collapse of the global economy during the financial crisis, and to the $700 billion Troubled Asset Relief Program.

Now, FASB wants to require banks to adopt another form of mark-to-market accounting rules known as the Current Expected Credit Losses standard, or CECL.

CECL requires banks to estimate their credit losses over the life the loans, and book the losses upfront. Thus, a bank that makes 30-year mortgage loans would have to estimate and book its losses on that portfolio on day one.

This policy is terribly wrongheaded. And we fervently disagree with a recent op-ed in the American Banker that urged Congress to impose CECL on the entire banking industry as soon as possible.

Lawmakers recently delayed the CECL standard for certain banks as part of its response to the coronavirus pandemic and concerns about the financial constraints that implementation would create amid a crisis.

It is essential that all bank regulation be countercyclical. CECL is the opposite.

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BankThink How small banks can help small companies get through coronavirus published by American Banker by William M. Isaac, Howard P. Milstein

BankThink How small banks can help small companies get through coronavirus published by American Banker by William M. Isaac, Howard P. Milstein

April 7, 2020

The coronavirus has brought together a badly divided country in a way almost never seen.

With an invisible enemy uniting the nation, the vibrant network of more than 5,000 local banking institutions, if properly harnessed, can be a crucial weapon. There is no better vehicle available to stabilize the nation’s economy than the banks rooted in their local communities.

These banks are closely connected to individual and small-business borrowers, with loans usually secured by residential and commercial real estate, farmland and automobiles in cities, suburbs and towns across the country. While all banks, their customers and the communities they serve will benefit from the CARES Act recently adopted by Congress, more help specifically for smaller banks and middle America is necessary.

The Troubled Asset Relief Program enacted in response to the last financial crisis primarily helped major financial institutions in metro cities recover. In this new crisis, Congress and federal banking agencies need to encourage community banks with assets of less than $10 billion, and with satisfactory ratings from their federal regulators, to provide immediate temporary relief to the borrowers most adversely by the economic downturn amid COVID-19.

Community banks provide roughly half of the business loans in the country, and they must be enlisted to help their communities and borrowers. The current legislation provides that new SBA- guaranteed loans can be offered by banks. The problem is that community banks also need help to protect themselves and the individual, agricultural and small-business borrowers with existing loans.

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BankThink Calls for CECL delay expose standard’s flaws published by American Banker by William M. Isaac and Thomas P. Vartanian

BankThink Calls for CECL delay expose standard’s flaws published by American Banker by William M. Isaac and Thomas P. Vartanian

March 24, 2020

The Federal Deposit Insurance Corp. chief has fired up what could be the opening barrage in the war over accounting supremacy.

Specifically, FDIC Chairman Jelena McWilliams urged the Financial Accounting Standards Board to suspend or defer the adoption by banks of the new Current Expected Credit Losses methodology for recording losses.

When or if CECL becomes effective, it would require a bank to estimate and book the losses it might incur over the life of a loan. The bank would not be allowed to estimate and book the interest it would receive on the loan even though that is a much more certain calculation than estimating losses.

Consider the absurdity of federal agencies, such as the Federal Reserve, the FDIC and the Comptroller of the Currency, having to go to FASB hat-in-hand to protect the financial integrity of the U.S. banking system.

All hands are on deck in Washington as policymakers are trying to determine how long the pandemic will last; how many lives will be lost or debilitated as a result; and how devastating the economic damage might be.

And yet, the federal agencies established by Congress to implement protections over the banking system and economy must go on bended knee to a self-appointed group of accountants (FASB), who are not subject to government oversight or regulation, not even the Administrative Procedures Act and Freedom of Information Act.

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BankThink How regulators can kick COVID-19’s bank shock into remission published by American Banker on March 17, 2020 by William M. Isaac and Thomas P. Vartanian

BankThink How regulators can kick COVID-19’s bank shock into remission published by American Banker on March 17, 2020 by William M. Isaac and Thomas P. Vartanian

March 18, 2020

The United States is confronting its most serious pandemic challenge ever.

The longer it lasts and the more severe it becomes, the more likely that the health of financial institutions and their ability to support the economy will suffer as well. If that happens, it could detonate a string of risks already embedded in the system that could ripen into a severe financial crisis marked by shrinking lines of credit and liquidity constraints.

It is time to start thinking about possible antidotes. One such antidote might include releasing financial institutions from at least some of the blizzard of federal and state rules and ratios they’re subject to so that the impact of the coronavirus does not become a longer and more expensive financial event for the American people.

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BankThink Crackdown on bank-fintech partnerships would hurt subprime borrowers published by American Banker on December 26, 2019 by William Isaac

BankThink Crackdown on bank-fintech partnerships would hurt subprime borrowers published by American Banker on December 26, 2019 by William Isaac

December 26, 2019

Partnerships between fintech firms and banks provide access to safe and affordable credit to more than 160 million Americans.

These are people who have generally been excluded from traditional financial institutions because they have a nonprime credit score of less than 700.

For nonprime Americans, a surprise expense like a car breakdown or an important medical attention could mean relying on costly, predatory loan providers. This is exactly why regulators have long supported bank-fintech partnerships that allow FDIC-insured banks to lend to nonprime Americans in a safe, convenient and responsible way.

Just as technology companies are providing revolutionary, on-demand food delivery and transportation services, financial technology companies are partnering with traditional banking institutions to improve customer experience and increase access to financial products and services.

Federal regulators recognize the need for policies that reflect technological advances and online services, but some legislators and consumer groups cannot seem to understand why these partnerships exist or how the consumer is safer with them than without them.

Link to the full story Click here

Why the Financial Accounting Standards Board must hit pause on CECL by William M. Isaac and Thomas P. Vartanian

Why the Financial Accounting Standards Board must hit pause on CECL by William M. Isaac and Thomas P. Vartanian

July 24, 2019

“Those who fail to learn from history are doomed to repeat it.” Winston Churchill’s words should serve as a warning to the Financial Accounting Standards Board (“FASB”) regarding the Current Expected Credit Loss accounting standard (“CECL”).  If FASB looks to the past, it will appreciate why the implementation of CECL should be paused and substantially rethought.

The CECL raises questions that many admit require further market experience to evaluate. A similar rush by FASB in the face of unanswered concerns resulted in disastrous financial consequences in 2008 when “mark-to-market accounting” was redefined by FASB. Despite warnings from the banking industry, FASB 157 was activated, and things went south almost immediately, causing massive write-downs of loans by bank and non-bank lenders alike. Accounting or paper losses of $500 billion in U.S. banks triggered a global financial crisis that required a decade to work its way through the economy — a lost decade that brought irreparable harm to millions of people.