The new loan-loss rule will soon require banks to book losses on loans more quickly, but banks are now petitioning U.S. Treasury Secretary Steven Mnuchin to review the rule.
Chief financial officers at 18 regional banks sent a letter to Mnuchin, asking him to conduct an analysis of the long-term economic effects of the rule that will take effect as early as 2019, according to an article by Michael Rapoport for The Wall Street Journal.
The letter explained the rule could cause economic harm by reducing banks’ lending and making borrowing more expensive.
From the article:
The CFOs said that because banks would have to book loan losses and take reserves based on economic forecasts that are inherently uncertain, the reserves will be subject to significant volatility. That will lead banks to err on the side of caution and reduce lending, especially during economic downturns, they said.
The American Bankers Association, an industry trade group, also criticized the new rule in a separate letter to Mr. Mnuchin last month, among a range of other regulatory issues. The group didn’t ask specifically for any action on Mr. Mnuchin’s part, but said that if unaddressed the rule would be “a particularly heavy weight” on community banks’ lending.
However, one member of the Securities and Exchange Commission explained this effort could undermine the independence of the Financial Accounting Standards Board, saying the Treasury Department typically doesn’t help set accounting standards.