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CECL: The Ugly Pig Running Out of Lipstick

By Theeya Musitief, Rick Jones & Jonathan Gaynor on April 6, 2020
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Here is something helpful that has surfaced amidst the fallout, pain and confusion of the global COVID-19 crisis.  The implementation date for the all-too-simple in theory but not-simple-at-all in practice CECL accounting standard has been pushed back by the passage of the CARES Act for banks until the COVID-19 national emergency declared by the president ends or December 31, 2020, whichever is earlier.  In addition, an interim final rule released by the FRB, OCC and FDIC on Friday, March 27th, now provides an option to delay the effects of CECL on regulatory capital for two years (in addition to the original three-year transition period for banks required to adopt CECL during their 2020 fiscal year).  Banks opting to use both forms of relief would be subject to a modified transition period which would be reduced by the amount of quarters CECL was delayed due to the CARES Act.  No relief was provided for non-banks who are otherwise required to follow CECL.

When CECL was first introduced what seems like four score years ago, regulators basked in the glow of a good deed well done.  CECL, an egg-headed notion if there ever was one, purported to protect the public by making nefarious or reckless lenders book losses at the inception of a loan based on a complex model-driven notion that lenders can accurately predict life of the loan loss expectancies … who knew?!  Why wait for any evidence of a real loss!  In April 2019, we warned of the new standard’s impracticality, astronomical costs and that it was procyclical by reducing credit availability just when it is needed….like now.

FASB, for its part, opposed further delaying CECL’s implementation.  CECL’s optional delay may mean that the financial sector can finally breathe a momentary sigh of relief.  That is, until everyone realizes how much time, money and effort has already been spent towards implementing CECL in 2020.

Photo of Rick Jones Rick Jones

Richard D. Jones (“Rick”), co-chair of Dechert’s Finance and Real Estate group, focuses his practice on capital markets and mortgage finance. Mr. Jones was designated as a leading lawyer for real estate in the 2005-2009 editions of Chambers USA, a referral guide…

Richard D. Jones (“Rick”), co-chair of Dechert’s Finance and Real Estate group, focuses his practice on capital markets and mortgage finance. Mr. Jones was designated as a leading lawyer for real estate in the 2005-2009 editions of Chambers USA, a referral guide to leading lawyers in the United States based on the opinions of their clients and peers. Mr. Jones was described as “one of the savviest capital markets / mortgage finance lawyers in America’s real estate sector” in the 2007 edition of The Legal 500 (U.S.), which also named him one of New York’s top capital markets attorneys in its 2008 and 2009 editions. In addition he is listed in The Best Lawyers in America.

Mr. Jones recently received the Commercial Mortgage Securities Association’s (CMSA) Founders Award for his leadership. He has also received the Distinguished Service Award from the Mortgage Bankers Association of America (MBA) which is given annually to one person who has provided sustained and effective leadership to the industry.

Mr. Jones is past president of the CRE Finance Council; a founder of the Commercial Real Estate Institute (CRI); a member and past governor of the American College of Real Estate Lawyers and a former chair of its Capital Markets Committee; and a member of the Executive Committee of the Commercial Mortgage Board of Governors (COMBOG) of the MBA. Mr. Jones is a member of the Real Estate Roundtable, serving on its Capital and Credit Policy Advisory Committee. He also serves as the chairman of CRE Finance Council’s PAC as a member of the Commercial Real Estate Working Group of the Financial Services Roundtable, and on the MBA’s blue ribbon Council on Ensuring Mortgage Liquidity.

Mr. Jones is widely published and a frequent speaker on a wide range of issues affecting the capital markets and mortgage finance markets.

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  • Posted in:
    Corporate & Commercial, Financial, Real Estate & Construction
  • Blog:
    Crunched Credit
  • Organization:
    Dechert LLP
  • Article: View Original Source

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