Finance and Economics Discussion Series (FEDS)

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August 2019

CECL and the Credit Cycle

Bert Loudis and Ben Ranish

Abstract:

We find that that the Current Expected Credit Loss (CECL) standard would slightly dampen fluctuations in bank lending over the economic cycle. In particular, if the CECL standard had always been in place, we estimate that lending would have grown more slowly leading up to the financial crisis and more rapidly afterwards. We arrive at this conclusion by estimating historical allowances under CECL and modeling how the impact on accounting variables would have affected banks' lending and capital distributions. We consider a variety of approaches to address uncertainty regarding the management of bank capital and predictability of credit losses.

Accessible materials (.zip)

Keywords: ALLL, Accounting policy, CECL, Loans, Provisioning

DOI: https://doi.org/10.17016/FEDS.2019.061

PDF: Full Paper

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Last Update: January 09, 2020