A major shift in how banks account for losses on loans is having far less of an impact on New England community banks’ reserves, challenging expectations. 

Following a vote last month, the Financial Accounting Standards Board yesterday formally issued its proposal to delay the deadline for many banks, credit unions and other smaller companies to delay implementing a new accounting standard that would dramatically change how lenders would treat loans.

Banks currently recognize their loan losses through an incurred model. When an event occurs that impairs a loan and causes it to lose value, the bank reflects this on their financial statements. Under the new  current expected credit losses standard, or CECL, banks will essentially have to forecast losses on the life of a loan and anticipate which loans are likely to become impaired based on detailed data, impacting the reserves they must keep.

Public banks that are SEC filers excluding small reporting companies will still have to implement CECL at the beginning of next year, but all other entities will have until Dec. 15, 2022 to implement the new accounting standard FASB is inviting the public to submit comments on the changes by Sept. 16.

FASB’s board concluded in the minutes that it has received sufficient information and analysis to make an informed decision on the perceived costs of the changes brought on by CECL, and that the expected benefits would justify the expected costs of the amendments in the proposed update. Many bank leaders have indicated they are running into trouble readying their firms for the change, including many New England community banks, which say their lack of historical losses will make it difficult to predict when a loan will go bad. Many banking trade groups have called for more study of CECL, and some members of Congress had floated a law to force a delay.

“Based on what we’ve learned from our stakeholders, including the Private Company Council and the Small Business Advisory Committee, private companies, not-for-profit organizations, and some small public companies would benefit from additional time to apply major standards,” FASB Chairman Russell G. Golden said in a statement. “This represents an important shift in the FASB’s philosophy around effective dates, one we believe will support better overall implementation of these standards.”