“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.