November XX, 2015
Mr. Russell G. Golden
Chairman
Financial Accounting Standards Board
401 Merritt 7
Norwalk, CT 06856-5116
Re:
Proposed Accounting Standards Update: Financial Instruments—Credit Losses
Dear Mr. Golden:
My name is [INSERT NAME HERE] and I am [INSERT TITLE HERE] of [INSERT BANK
NAME HERE]. I am writing to express serious concerns regarding the proposed accounting
standards update on impairment for loans and certain investment securities currently under
deliberation by the FASB. My community bank, along with thousands of others throughout the
United States, is a small, relationship-based institution that serves the local community through
customized lending tailored to specific customer needs. My bank lends in our community based
on relationships we have built with our customers over many years. The proposed expected
credit loss model, with its reliance on complex modeling techniques provided by vendors at great
cost to my bank and the immediate, front loading impact on loan loss provisioning, is simply the
wrong approach to properly provide for future credit losses. Recently, bank regulators have
indicated that, if adopted, banks of all sizes (i.e., both community banks and large banks) will
need to conduct a robust analysis on the allowance for credit losses using tools provided by
external service providers. This will impose a severe regulatory burden on community banks
without a corresponding benefit.
I am asking you today to adopt the alternative proposal put forth by the Independent Community
Bankers of America. The proposal set forth by ICBA relies on historical loss experience for
similar assets as the way to appropriately build the loan loss reserve. As loans and securities
become impaired where a loss is probable, my bank would increase the reserve based on a
specific measurement of impairment and loss mitigation alternatives. ICBA’s alternative
proposal properly builds the necessary allowance in a ratable fashion that matches the credit risks
inherent in the financial instrument with its earning potential. Additionally, reserves are
recognized sooner in the credit cycle than the current standard, which meets FASB’s objective in
reforming the shortfalls exposed during the recent credit crisis.
Most importantly, the alternative proposal removes the day-one-loss concept from the equation, a
provision that would greatly harm community banks nationwide. Bank regulators have already
indicated that implementation of this standard will require an immediate increase in loan loss
provisions of 30 to 50 percent with no explanation or transparency as to how these estimates
were calculated. Community banks do not have readily available access to the capital markets to
raise the capital needed to offset the immediate depletion of retained earnings required under the
FASB proposal. Adoption of the proposal would result in instant loss of capital for all
community banks, which would have a sizable impact on each bank’s ability to lend in their
community. Additionally, community banks will be reluctant to take the risk necessary to
promote economic development out of fear that a sizable day-one loss will result in deterioration
of capital levels.
Instead of creating new proposals to force greater capital retention for community banks, FASB
should focus instead on the Globally Significant Important Banks or G-SIBs that currently are far
less capitalized than regional and community banks under International Financial Reporting
Standards and that bring significantly greater risk to their investors and the national economy
when off-balance sheet items are not reflected in capital ratios.
Thank you for considering my concerns with the proposed expected credit loss model. If you
have any questions or would like additional information, please do not hesitate to contact me at
[INSERT PHONE NUMBER HERE] or [INSERT E-MAIL ADDRESS HERE].
Sincerely,
/s/
[INSERT FIRST NAME HERE] [INSERT LAST NAME HERE]
CC:
Mr. Martin J. Gruenberg
Mr. Thomas J. Curry
Dr. Janet L. Yellen
Mr. Robert F. Storch
Mr. Rusty A. Thompson
Mr. Steven P. Merriett