- Any new standard set by the Financial Accounting Standards Board (FASB) would have to go through a formal review process to determine its impact on the economy, market stability and the availability of credit, according to a bill introduced Friday by Rep. Blaine Luetkemeyer, R-MO, ranking member of the House Financial Services Committee.
- The bill would also subject FASB — an independent, private-sector standards-setting body for the accounting profession — to the Administrative Procedures Act, which would require its proposed standards to receive a public comment period, among other requirements, in the same way as federal agencies.
- "This bill will not take away FASB's independence, but it will force them to perform the due diligence they have proven unwilling to do," Luetkemeyer said in a statement.
Luetkemeyer said he had FASB's handling of its current expected credit loss (CECL) standard in mind when he drafted the bill.
The new CECL standard requires banks to record expected future losses as soon as loans are issued.
Banks use what's known as the incurred-loss method, which measures expected credit losses over the life of a loan at the time it's recorded based on historical experience, current conditions and forecasts.
The new standard takes effect by the end of the year for the country's big banks and a year later for other financial institutions.
The banks oppose the standard and complained FASB didn't think through the new standard's impact before issuing it this summer.
After lobbying by the American Banking Association and other trade groups in July, Rep. Vicente Gonzalez, D-TX, introduced a bill instructing the Securities and Exchange Commission to study the impact the CECL standard would have on market stability and capital availability.
The Luetkemeyer bill would go much further, since it would subject all of FASB's rules to the kind of oversight government agencies face.
A spokesperson for FASB said the organization is ready to work with interested groups to allay concerns.
"The [Financial Accounting Foundation] and FASB are committed to continue meeting with stakeholders on Capitol Hill and elsewhere to answer their questions, hear their concerns and discuss the time-tested benefits of the integrity of the standard-setting process," the spokesperson told the Wall Street Journal.