A major shift in how banks account for losses on loans is having far less of an impact on New England community banks’ reserves, challenging expectations. 

The Federal Accounting Standards Board voted on Oct. 16 to delay the new current expected credit loss standard for some companies. In its decision, FASB said the delay would provide additional implementation time for eligible entities.

The delay does not apply to public banks that are SEC filers, excluding small reporting companies (SRCs). These larger public banks will need to implement the accounting standards, also known as CECL, beginning Jan. 1, 2020, or in the applicable fiscal year and interim periods after Dec. 15 of this year.

All other entities will have until Dec. 15, 2022, to implement the new accounting standard. Wednesday’s FASB decision stated that a “one-time determination of whether an entity is eligible to be an SRC will be based on an entity’s most recent assessment in accordance with SEC regulations.”

Banks currently recognize their loan losses through an incurred model. When an event occurs that impairs a loan and causes it to lose value, the bank reflects this on their financial statements. Under the new CECL standard, banks would essentially have to forecast losses on the life of a loan and anticipate which loans would likely become impaired based on detailed data, impacting the reserves they must keep. However, many New England banks have found it difficult to forecast these losses as most have few historical losses on which to build predictive models.

The National Association of Federally-Insured Credit Unions supports the delay, according to a statement on its website. The statement added that the NAFCU continues to have concerns about potential negative implications CECL could have on the credit union industry.

“NAFCU maintains that credit unions should not be subject to CECL and will continue to ask FASB to consider less burdensome alternatives for the industry,” the NAFCU said in the statement.

Rob Nichols, president and CEO of the American Banker’s Association, said in a statement that the organization was disappointed that the FASB did not put the CECL standard on hold for all companies until its full effects could be studied.

“Major market participants including investors, consumer groups, auditors and financial institutions, as well as members of Congress from both parties, have all called for such a delay given concerns that CECL could harm the broader economy and vulnerable populations in particular,” Nichols said.

Nichols added that the FASB could still put CECL on pause for all companies until it can determine its impact.

“If FASB chooses to proceed over the objections of market participants, we urge lawmakers to quickly take up the bipartisan ‘Stop and Study’ bills in both the House and Senate to ensure the economy is spared the potential harm from a new accounting standard that carries too much unnecessary risk,” Nichols said.