Current Expected Credit Loss Standards (CECL)

ABA Position

The Financial Accounting Standards Board’s Current Expected Credit Loss impairment standard – which requires “life of loan” estimates of losses to be recorded for unimpaired loans -- poses significant compliance and operational challenges for banks. Issued in June 2016, and set to take effect in 2020 for large SEC registrants (2023 for all other banks), the new standard represents the most sweeping change to bank accounting ever.

While initially requested by worldwide banking agencies to decrease procyclicality in the banking industry, banks and other financial companies are finding—through the testing of their estimation models—that CECL would actually increase procyclicality and perhaps significantly. By increasing procyclicality into the banking system, CECL will cause economic downturns to be more severe and to last longer. This will increase the cost and decrease the availability of credit, especially to consumers and to those borrowers of non-prime credit quality or those who rely on loans with longer terms. It also increases the challenge for banks to manage their capital and investors to assess bank performance. As a result, ABA has called for FASB, banking regulators, and the SEC to perform a quantitative impact study to better understand the problem and to assess measures to mitigate the unintended consequences.

The “life of loan” credit loss concept also presents operational complexities that can significantly increase costs at banks of all sizes. ABA is a thought-leader in CECL and publishes discussion papers related to CECL implementation concepts, provides other CECL-related resources, holds periodic CECL conference calls, and also sponsors the ABA CECL Network, a 1,000+ member-only group-site for banks to exchange ideas and to discuss key CECL implementation issues.

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Related Training & Events

CECL Finish Line – Model Risk Management & Model Validation
Recorded Webinar | June 30, 2022

Join this webinar with Abrigo’s Neekis Hammond, CPE and KPMG’s Joe Bielecki as they discuss the merits of model validation and alternative controls.
CECL Implementation Best Practices – A Discussion with Community Banks
Recorded Webinar | March 1, 2022

Most community banks with assets under $1 billion will implement CECL in 2023. But, where to start? Peter Albero, EVP and CFO of Salisbury Bank, and Candace L. Richardson, internal audit manager and CECL officer for Security State Bank, share their recent CECL implementation strategies. The discussion will also include time for FAQs about the implementation process from CECL experts.
CECL in 2023: Best Practices Learned from SEC Filers
Recorded Webinar | March 17, 2021

In this presentation, tailored for financial institutions that have not yet adopted the standard -- or those who may feel the need to take a second look at their practices given the realities of the pandemic economy - we will discuss lessons learned from implementing the standard at more than a hundred such institutions, working with scores of different audit and validation firms across the spectrum of size, resources, and sophistication.
Moving Forward: Financial Reporting, Capital Planning, and M&A Considerations
Recorded Webinar | October 5, 2020

In the final webinar of our three-part series on credit risk guidance and coping with portfolio stress, Crowe specialists will go over approaches for getting a head start on spotting problem loans.