A group representing community banks is objecting to recent remarks last week by Financial Accounting Standards Board chairman Russell Golden, claiming they “slander” community banks.

During a speech at an American Institute of CPAs conference in Washington, D.C., last week, Golden discussed some misconceptions surrounding FASB’s upcoming financial instruments standard on loan impairment, and why the standard needed to apply to community banks. One of those misconceptions, he noted, was that the credit crisis involved only large banks.

“In 2007, the FDIC closed three banks,” he said. “In 2008, the FDIC closed 25 banks. In 2009, the FDIC closed 140 banks. Nearly all of those 168 banks were small, community banks. Clearly, community banks have been a major part of the problem. Based on these statistics, the FASB felt it was important that all lending institutions be included in the new guidance.”

The Independent Community Bankers of America leadership cried foul and claimed Golden’s remarks reflect a lack of understanding and disregard for community banks and a selective historical view of the Wall Street financial crisis.

In a letter sent Tuesday to Golden, the ICBA Executive Committee criticized him for denying the excessive cost and complexity inherent in FASB’s Current Expected Credit Loss model.

“To say that community banks were a ‘major part of the problem’ is a direct slander on hardworking Americans who devote their professional and, in many cases, personal energies to providing for their communities in both good times and bad,” wrote ICBA chairman Jack Hartings, president and CEO of The Peoples Bank Co. in Coldwater, Ohio. “FASB’s continued inability to comprehend the community bank business model has resulted in flawed accounting that will harm all aspects of bank lending in this country, costing thousands of jobs and financing options that keep small communities thriving.”

FASB disagreed with the ICBA’s interpretation of Golden’s comments about community banks. “In his remarks at the AICPA Conference on Current SEC & PCAOB Developments, FASB chairman Russ Golden addressed common misconceptions and concerns about the FASB’s upcoming standard on credit losses,” said FASB spokesperson Christine Klimek in an email to Accounting Today. “Citing FDIC reports, Mr. Golden noted that approximately 168 community banks were shut down during the financial crisis, underscoring the need for a more forward-looking model for reporting credit losses for both large and small banks. Taken in context, the problem that Mr. Golden was highlighting is the limitation of the current accounting standard. His remarks were intended to demonstrate the limitations of the existing incurred credit loss model, and how it prevented more timely recognition of loan losses in lending institutions of all sizes—not just large banks.

“Mr. Golden’s discussion of loan impairment was not intended to suggest in any way that community banks were the cause of the financial crisis,” Klimek added. “We believe that the FASB’s upcoming current expected credit loss model should apply universally to large and small financial institutions—and that its improvements address the issues that were highlighted during the financial crisis.”

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