For years, Rep. Blaine Luetkemeyer (R-Mo.) has pressed nearly every regulator and expert witness that came through the House Financial Services Committee on his signature issue -- an accounting standard opposed by banks called the current expected credit losses, or CECL.
He notched a major victory last month, when he pushed a provision in the $2 trillion economic stimulus package that allows banks to delay compliance with this rule -- which requires that banks record expected losses from a loan as soon as it’s issued, instead of when the losses occur, and set aside capital accordingly -- until Dec. 31 or the end of the national coronavirus emergency, whichever comes first. Regulators also came around to Luetkemeyer’s view, issuing an interim rule at the end of last month that delays the capital effects of the rule until 2022.
Now that fight is over, he is shifting his efforts to a new front: pushing the Securities and Exchange Commission to ramp up its oversight of the Financial Accounting Standards Board, the body that originally published CECL.
Luetkemeyer has argued that the accounting standard would be costly for small banks to implement and could limit lending across the board, especially in times of economic distress as banks try to keep enough capital on their balance sheets.
“We now have a real-life case study of this,” Luetkemeyer said. “Once we get past the crisis stage of the pandemic, we’ll get back to D.C. with a new awareness of the problem.”
One issue that Luetkemeyer and banks have with FASB is the standard-setter’s unusual structure. FASB sets accounting standards, which are broadly the limits of its power. The SEC officially has authority for accounting standards over publicly traded companies, but delegates to FASB.
That means FASB doesn’t answer to Congress in the same way that prudential regulators do, like the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. That reporting structure poses issues for critics like Luetkemeyer, who would like to put more pressure on FASB to get rid of rules like CECL.
“You have this quasi-independent standards setter, which is different from other regulators but sort of overseen by one of those regulators,” said Ian Katz, director and financial policy analyst at Capital Alpha Partners. “That causes a lot of confusion, even in Congress.”
Leutkemeyer said that he and a bipartisan group of lawmakers spoke with SEC Chairman Jay Clayton at the end of March about tightening oversight of FASB, which he said Clayton was reluctant to do.
While FASB operates essentially independently, the SEC could pressure the body by threatening to take away its standard-setting powers, or legislation out of Congress could grant the agency more leeway to perform oversight.
“He’s always been hesitant to come down on the agency,” Luetkemeyer said. “But a lot of folks are asking him to step in.”
Aides to other lawmakers on the House Financial Services Committee who were on the March call confirmed its contents. The SEC and FASB declined to comment.
Luetkemeyer is also advocating that FASB be subject to the Administrative Procedures Act, which would encourage the body to perform research into the economic impact of its rules -- a major sticking point between some lawmakers and FASB on the CECL issue.
During a House Financial Services Committee hearing in January, before the coronavirus pandemic hit the United States, lawmakers, especially Leutekmeyer, criticized FASB Chairman Russell Golden for not doing an economic impact study of CECL, which FASB argues isn’t in its wheelhouse.
While Luetkemeyer is one of the most vocal opponents on the Hill of CECL, analysts say that it’s likely we see increasing talk of FASB oversight from Congress and regulators, especially as critics say the economic turmoil caused by the coronavirus pandemic highlights issues with the accounting standard.
Isaac Boltansky, director of policy research at Compass Point Research & Trading LLC, said the implementation of the new accounting standard highlights some of the difficulties with performing oversight on the standard-setting body.
“At the highest level, the CECL saga surprised many in the industry because it demonstrated that FASB is more shielded from external pressure than anyone expected,” he said. “The new accounting standard was criticized by industry, lawmakers and investors, but FASB crossed the goal line on CECL largely unabated.”