CECL Standards Guidance

magnifying-glass2-150x150The federal banking agencies issued guidance in June on implementing the Financial Accounting Standards Board’s new loan loss accounting standard, which uses a current expected credit loss, or CECL, model. Under CECL, banks will be required to record, at the time of origination, credit losses expected throughout the life of the asset portfolio on loans and held-to-maturity securities – in contrast to today’s “incurred loss” accounting. The regulatory guidance provides information on CECL’s key elements, noting areas where it differs from current U.S. generally accepted accounting principles and emphasizing that they expect CECL to be “scalable to institutions of all sizes.”  While the agencies said they did not expect that “smaller and less complex” banks will need to adopt “costly and complex models” to meet the new requirement, they noted that “institutions would need to consider how to adjust historical loss experience not only for current conditions as is required under the existing incurred loss methodology, but also for reasonable and supportable forecasts” of the future. The agencies also provided guidance on how they will apply the new standard to different classes of assets at the effective dates of 2020 and 2021 and outlined steps to take to remain in compliance as CECL is implemented. Watch the American Bankers Association’s introductory video on CECL.

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