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.