FASB

Subscribe to FASB

Here is something helpful that has surfaced amidst the fallout, pain and confusion of the global COVID-19 crisis.  The implementation date for the all-too-simple in theory but not-simple-at-all in practice CECL accounting standard has been pushed back by the passage of the CARES Act for banks until the COVID-19 national emergency declared by the president ends or December 31, 2020, whichever is earlier.  In addition, an interim final rule released by the FRB, OCC and FDIC on Friday, March 27th, now provides an option to delay the effects of CECL on regulatory capital for two years (in addition to the original three-year transition period for banks required to adopt CECL during their 2020 fiscal year).  Banks opting to use both forms of relief would be subject to a modified transition period which would be reduced by the amount of quarters CECL was delayed due to the CARES Act.  No relief was provided for non-banks who are otherwise required to follow CECL.
Continue Reading CECL: The Ugly Pig Running Out of Lipstick

Just a few short months ago we took on the breathtakingly ill-conceived Current Expected Credit Loss (CECL) standard that the Financial Accounting Standards Board (FASB) proposed to implement starting in 2020.  CECL will require major shifts in the way lenders model, forecast and reserve for future losses.  It would materially drive up capital requirements, impair earnings and ultimately drive spreads higher to the borrowing community.  And by the way, it would be pro-cyclical.  If we were actually going to do these things (and we shouldn’t), an unelected financial standard setting committee is surely the wrong party to hold the pen.

The lending community screamed bloody murder, and for good reason.  Luckily, the small banking community was at the forefront on this cri de coeur.  While the money center banks may be one of our pols’ favorite whipping boys, everyone in politics loves the small banker (visions of Jimmy Stewart dancing in their reptilian brains) because those bankers made loans to their constituents, support their local community and, oh, by the way, made significant political contributions.Continue Reading Beany & CECL – Episode 2

Beany & Cecil was a cartoon.  The Current Expected Credit Loss accounting rules, better known as CECL, which the FASB is insisting will go into effect at the beginning of next year for publicly traded banks and lenders and a year later for all other GAAP reporting entities is not.  Now, heaven forfend that I suggest that the work of the Financial Accounting Standards Board is cartoonish, but there’s a parallel in this pairing of harmless and obscured menace worth noting. 
Continue Reading Beany & CECL

Here’s a headline for you:  We don’t know if a conventional CMBS securitization where risk retention bonds are retained by a B-buyer under an industry standard third party purchaser agreement achieves accounting sale treatment.  Failure of accounting sale treatment means the selling bank cannot book the gain and does not derecognize the underlying loans resulting in the entire portfolio of loans remaining on its balance sheet for both Generally Accepted Accounting Principles, or GAAP, and presumably, for risk based capital purposes.

As might have been said by that great philosopher of the 20th Century: “You cannot possibly be serious!”

Commercial Mortgage Alert broke the story on Friday, August 11th and so I’m finally going to talk about the issue.  I’ve been itching to do so since early June when I became aware of the problem but it really didn’t seem there was a lot of upside for a broad industry discussion of the problem back then while the auditors and the internal finance teams at our banks and other CMBS sponsors were still pondering the issue.  But, after a good deal of mulling and to-ing and fro-ing, it’s still not resolved so I think it’s time to bring fun with GAAP out of the closet.Continue Reading Fun With GAAP:  CMBS at Risk

Just when you thought it was safe to go out at night again, another reason not to deploy capital is slouching into Bethlehem. We’ve written a lot here at CrunchedCredit about the Damian-like progeny of Dodd-Frank and Basel, but we’ve let this one slip through the cracks. And, boy, oh boy! – We need to pay attention to this thing. We’re talking FASB.

Okay, so what’s this all about? The story starts in Norwalk, Connecticut back in the 1970’s. The accounting industry at that time, chartered a private institution known as the Financial Accounting Standards Board (FASB) to establish financial accounting and reporting standards for public and private companies complying with Generally Accepted Accounting Principles (GAAP). A powerful organization was born. FASB still sits today in leafy Norwalk, Connecticut and generally beavers away in relative obscurity, tinkering with GAAP standards, both large and small. Periodically, however, the Board tosses a Zeus-like bolt of lightning from on high masquerading in the clothing of dry, dusty guidance to auditors which fundamentally changes how business is conducted. (Btw, let me tell you, Norwalk makes a pretty crappy Olympus).Continue Reading Let’s Just Fess Up and Agree, Loans are Dodgy Things:  FASB’s New Growth Killing Rule on Loan Losses