Accounting Clash


ICBA repeats opposition to accounting plan to standards-setting board

By James Kendrick

After years of pushing back against a proposal to radically change accounting standards for every community bank in the country, ICBA got the attention of the Financial Accounting Standards Board during a special meeting last month at the accounting standards-setting board’s Connecticut headquarters. The roundtable discussion followed ICBA’s request for a meeting between community bankers and the FASB board to explore the industry’s concerns with FASB’s Current Expected Credit Loss proposal.

ICBA and the nation’s community bankers are calling on FASB to pause the standard-setting process until these concerns have been fully explored and remedied. Despite countless calls by ICBA to reform the CECL proposal to better fit community banks’ operations, FASB before last month’s meeting, had repeatedly shown an unwillingness to consider altering its course.

The three community bankers—Greg Ohlendorf, president and CEO of First Community Bank and Trust in Beecher, Ill.; Lucas White, vice president and director of The Fountain Trust Co. in Covington, Ind.; and Tim Zimmerman, president and CEO of Standard Bank in Monroeville, Pa.—attended the roundtable with FASB and warned that the CECL proposal could irreversibly damage the ability of community banks to continue meeting the needs of local customers and communities.

“This dangerous proposal would reduce community bank lending, harm local economies and cost thousands of jobs in communities nationwide,” Ohlendorf, White and Zimmerman said in a joint statement before the FASB board.

Standard persuasion. Under the CECL proposal, community banks would estimate expected credit losses for the life of a financial instrument and recognize the net present value of those losses at the moment of origination. Even though the proposal would push loan losses further up the credit cycle, it would require community banks to deploy complex and expensive credit-modeling systems that would remove their discretion to make localized financial decisions.

At the FASB roundtable, community bankers pulled no punches in explaining how disastrous this would be for the industry. Ohlendorf noted that the Office of the Comptroller of the Currency has projected that the CECL plan would cause a 30 to 50 percent hike in industry loan-loss reserves, tying up community bank capital that would otherwise be used to lend and invest in local economies. Additionally, forcing day-one losses on lenders would effectively penalize them for investing in their local communities, further increasing the cost of credit and constricting access to loans for many borrowers, White pointed out.

“Collectively, these dramatic changes would reduce community bank lending, harm local economies, and cost thousands of jobs in communities nationwide,” Zimmerman said.

Under pressure. The FASB roundtable comes as the standards-setter has come under mounting pressure to address community bank concerns. In the days before the meeting, 62 members of Congress from both parties expressed strong concerns with the CECL plan, noting it could irreversibly damage community banks’ ability to continue serving their customers.

The bipartisan group of lawmakers specifically asked whether FASB has weighed the impact of its plan on lower-income borrowers and small businesses and whether it has considered tiered implementation based on the size and risk profile of affected institutions. They also asked whether FASB has considered an alternative model based on historical losses, an approach that ICBA has long advocated and one that nearly 5,000 community bankers have supported in an ICBA petition.

Continue to Speak Out

ICBA urges community bankers to continue to use ICBA’s Be Heard grassroots advocacy website—online at—to make their voices heard over the Current Expected Credit Loss proposal by the Financial Accounting Standards Board.
More information about FASB’s proposal and ICBA’s historical-loss alternative is also available online at

ICBA’s alternative—basing loan-loss provisions on historical losses for similar assets—addresses the problems that FASB is attempting to solve under its CECL proposal. Under the ICBA plan, community banks would still build allowances for potential losses and recognize their reserves sooner in the credit cycle—but without relying on costly and complex modeling systems that would disrupt their localized business model.

The congressional letter, largely generated by ICBA’s education of Congress on this issue, follows controversial comments from FASB’s chairman erroneously implicating Main Street community banks in the Wall Street financial crisis. Those remarks, which ICBA publicly challenged in the press and in an ICBA Executive Committee letter to FASB, brought much public attention to the board by clearly showing what we have long known—that it has much to learn about community banking.

With the eyes of community bankers, many members of Congress and even some national news outlets now focused on FASB, it is time for the board to listen to our concerns. While FASB’s response remains to be seen, ICBA will continue to fight for our alternative plan and for an industry whose voice needs to be heard.

ICBA continued its media campaign against FASB’s proposed accounting reforms in a new op-ed published in The Hill newspaper by ICBA President and CEO Cam Fine. In the opinion piece, Fine said that the eyes of community bankers—and many members of Congress—are on FASB and that the standards-setter should heed the rising discord to its complex modeling and steer toward an effective and more reasonable approach that avoids putting local communities in harm’s way.

“ICBA will continue making the voice of the community banking industry heard on this flawed accounting proposal, which would harm all aspects of community bank lending in this country if it is not corrected,” Fine said. “We continue advocating our alternative plan to base community bank loan-loss provisions on historical losses for similar assets, which would meet FASB’s objective of reforming shortfalls while limiting the negative impact on local communities.”

James Kendrick ( is ICBA vice president of accounting and capital policy.