The Federal economic stimulus bill, designed to offer some relief amid the coronavirus pandemic, includes a delay in which financial institutions are required to comply with the Financial Accounting Standards Board (FASB) new accounting standard for credit losses.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) states that no depository institution, bank holding company, or affiliate thereof will be required to comply with Accounting Standards Update 2016-13:
Measurement of Credit Losses
on all lenders, until the earlier of the date on which the national emergency declared by President Donald Trump terminates, or December 31, 2020.
The passage of the CARES Act represents an unprecedented (albeit temporary) override by the federal government over a requirement issued by the FASB.
Applying for SBA Loans
The stimulus bills have also greatly expanded the companies who are eligible to apply for and receive loans through the Small Business Association (SBA). Any lender that is an approved lender of the U.S. Small Business Administration 7(a) lending program is eligible to accept applications for the Paycheck Protection Program (PPP) that was enacted as part of the Coronavirus Preparedness and Response Supplemental Appropriations Act passed on March 6. The PPP expands the criteria for qualifying for loans granted under the Economic Injury Disaster Loan Program. For more information about the various programs offered by the SBA, visit:
Additional Considerations for Financial Institutions:
Potential Impact of CECL Standard Delayed Two Years
In addition to the temporary relief of implementation provided by the CARES Act, the Federal Reserve, Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation jointly announced that lenders who were required to convert to the Current Expected Credit Loss (CECL) standard in 2020, are allowed (but not required) to delay any corresponding impacts to capital ratios until 2022.
CECL press release
If a financial institution elects to delay recording impacts to capital ratios until 2022, it would then have three years to phase in any capital hits that would have taken place during the two-year delay by calculating the impact on a quarterly basis using a 25% scaling factor. These potential impacts are updated frequently. ACT will communicate as we learn new information.