As part of the CARES Act, the coronavirus-relief measure enacted in late March, Congress is allowing banks to hold off on adopting a new method for them to record their losses on loans that aren’t repaid. The new rule – known as “CECL,” for current expected credit losses – forces banks to book and reserve for loan losses much more quickly. Many regional and mid-sized banks complained that adopting it amid the pandemic as they were required to would cut into their capital just when they need it to make loans to help bolster the economy – so Congress is allowing them to put off adopting the new rule for months.
That’s going to keep investors from getting the kind of fuller, up-to-date information about the banks’ financial health that the new method was supposed to give them. But investor advocates are also worried that Congress’s move injects politics into the setting of accounting rules in a way it’s not supposed to be.