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 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.

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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.

A broken accounting system in need of repair by William Isaac and Thomas Vartanian published by The Hill on May 28, 2019

A broken accounting system in need of repair by William Isaac and Thomas Vartanian published by The Hill on May 28, 2019

May 28, 2019

The Financial Accounting Standards Board (FASB) continues to forge ahead with its plan to require banks to forecast and book current expected credit losses (CECL) over the life of loans without even an offsetting credit for expected interest income.

Bank regulators should not follow FASB down this dangerous path much as they did two decades ago. We are reminded of FASB’s ill-conceived mark-to-market accounting rules, which needlessly destroyed some $500 billion of bank capital in the U.S. alone and led to a global banking crisis and panic. As the saying goes: “Fool me once, shame on you; fool me twice, shame on me.”

CECL, as was the case with mark-to-market accounting, would be procyclical, meaning banks will be hit hardest in bad economic times when they can least afford it. It would also create a financial monoculture of risk that could deepen and prolong economic downturns when most banks’ balance sheets react the same way in a crisis.

We don’t have to guess about these things as we’ve been through them many times in the past, most recently in the financial crisis of 2008-2010. Why is it that we cannot learn and apply the lessons of the past?

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BankThink FASB’s accountability problem by William M. Isaac and Thomas P. Vartanian published by American Banker on April 26, 2019

BankThink FASB’s accountability problem by William M. Isaac and Thomas P. Vartanian published by American Banker on April 26, 2019

April 26, 2019

Great news for banks. We’ve decided to establish a self-governing body to create federal common law principles governing corporate conduct.

Since Congress has never legislated in this area, the field is wide open. Our new Corporate Conduct Principles Board, or CCPB, will consist of lawyers, financial institution executives and former regulators. It will function as a self-perpetuating, standards-setting ecosystem, exactly like another model we found.

To project a veneer of objectivity and independence, the CCPB and its members will be financially independent from the legal and banking industries. Its board members will temporarily separate themselves from their law firms and banks during their tenure to avoid questions about their allegiance.

Operating funds will primarily be derived from assessments on member companies, users of its intellectual property and the publication of its standards. Penalties assessed by the CCPB will support a scholarship fund, and its annual budget will be subject to regulatory review.

As some of you might have guessed, our model is the Financial Accounting Standards Board. Established in 1973, the FASB is a self-appointed pantheon of accounting gods that sits in Norwalk, Conn.

The FASB has hit the regulatory jackpot: It has been designated by the Securities Exchange Commission as the private organization to which the SEC offloads its statutory responsibility for establishing accounting standards for public companies in the United States.

Ironically, Congress formally sanctioned this delegation of authority in the Sarbanes-Oxley Act in 2002, after the economy was rocked by the Enron and other financial and accounting scandals of that period.

The CCPB hopes to piggyback on the privileges the FASB enjoys and what some have described as its “culture of entitled noninterference.” We expect Congress to authorize the role of the CCPB, and the courts and federal regulators to implement and enforce its rules, giving them the force and effect of law. What we particularly like about the FASB model is that unlike Congress’ enactment of a law or a regulatory agency’s promulgation of a rule, the FASB’s actions are not challenged.

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BankThink Accounting standards shouldn’t be left to the accountants, by William M. Isaac published by American Banker on January 4, 2019

BankThink Accounting standards shouldn’t be left to the accountants, by William M. Isaac published by American Banker on January 4, 2019

January 6, 2019

The SEC and FASB are at it again with a plan requiring banks to forecast and book “current expected credit losses” over the life of loans without even a credit for expected interest income. Bank regulators are dutifully moving forward with plans to implement the new accounting standards.

The impact could be very negative for most banks, but particularly those that hold mortgages and other longer-term loans. A typical community bank might have as much as half of its balance sheet in residential mortgage loans. Forecasting and booking losses over the life of a 30-year mortgage is highly speculative at best — and requiring it to be done would probably sound the death knell for long-term mortgages.

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BankThink A cautionary tale on brokered deposits By William M. Isaac

BankThink A cautionary tale on brokered deposits By William M. Isaac

November 9, 2018

The Federal Deposit Insurance Corp. is considering changing its rules governing brokered deposits, as American Banker recently reported. A number of bankers have urged the FDIC to liberalize the current rules so they might fund their banks more readily and extensively by purchasing money from deposit brokers. I would caution bankers and the FDIC to tread cautiously in this area.

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BankThink Don’t reinvent the wheel on housing finance: Restore Fannie and Freddie, by William M. Isaac published by American Banker on February 16, 2018

BankThink Don’t reinvent the wheel on housing finance: Restore Fannie and Freddie, by William M. Isaac published by American Banker on February 16, 2018

February 18, 2018

BankThink Don’t reinvent the wheel on housing finance: Restore Fannie and Freddie

Tackling the last piece of unfinished business from the 2008 financial crisis is a top priority for policymakers — the big question is how to do it.

Recently, an early draft of legislation aimed at reforming the twin housing giants Fannie Mae and Freddie Mac was made public. The proposed legislation, sponsored by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., comes just weeks after Federal Housing Finance Agency Director Mel Watt laid out his own ideas about the future of the government-sponsored enterprises. At the same time, Treasury Secretary Steven Mnuchin has articulated three core principles for reform: protect taxpayers, end government ownership and preserve the 30-year mortgage.

Yet unlike Secretary Mnuchin’s and Director Watt’s stated policy preferences, the Corker-Warner proposal would continue to keep Fannie and Freddie in conservatorship until certain metrics of competition could be met.

As policymakers evaluate options, an enlightened blueprint for reform put forward by investment firm Moelis & Co. warrants close attention.

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