ALEXANDRIA, Va. (6/3/13)--National Credit Union Administration Chairman Debbie
Matz urged the Financial Accounting Standards Board (FASB) to strongly consider how proposed credit impairment recognition
changes could impact small- and medium-sized credit unions, and their ability to serve members of modest means, in a Friday
letter to the board.
Matz said the compliance costs that this proposal could create are a particular
concern for the agency. The NCUA also has safety and soundness concerns regarding the proposal, she added.
The Credit Union National Association strongly opposes the FASB rule because it would be detrimental to the credit union
system and could have serious, unintended consequences for borrowers and the economy.
It is an unusual step for the NCUA to weigh in in this manner with FASB, an
action that is likely to draw extra attention from the accounting body.
The NCUA makes points similar to those CUNA has made about how the FASB plan
would unnecessarily burden the resources of credit unions and have the unintended consequence of reducing available credit
options for consumers during this time of economic rebuilding.
The FASB proposal would update accounting standards regarding financial reporting of expected credit losses on loans and
other financial assets held by financial institutions, including credit unions. The proposed model would utilize a single
"expected loss" measurement for the recognition of credit losses. It would replace the multiple existing impairment
models in U.S. generally accepted accounting principles that generally use an "incurred loss" approach.
Under the proposal, the reporting entity would be required to estimate the cash
flows that it does not expect to collect, using all available information, including historical experience and forecasts about
Matz in the agency letter noted that many small- and medium-sized credit unions
lack the resources to perform complex economic analysis at the time of loan underwriting. This lack of resources could force
these credit unions to make the difficult choice of paying third-party economic consultants, or cutting back on their lending
"Either choice would result in lower net income and reduced services to
consumers, which would threaten the viability of these institutions over the long term," the NCUA chairman noted.
"Since credit unions were the only federally insured financial
institutions to increase lending throughout the recent economic downturn, discouraging credit union lending would negatively
impact consumers going forward," she wrote.
CUNA welcomed the NCUA's letter to FASB. Last week, CUNA urged FASB to drop
its proposal, calling it "the most critical regulatory concern credit unions have faced in quite some time, including rules
or proposals that have been issued under the Dodd-Frank Wall Street Reform and Consumer Protection Act."