The Impact of the Current Expected Credit Loss Standard (CECL) on the Timing and Comparability of Reserves

Sarah Chae, Robert F. Sarama, Cindy M. Vojtech and James Z. Wang
Additional contact information
Robert F. Sarama: https://www.federalreserve.gov/econres/robert-f-sarama.htm
Cindy M. Vojtech: https://www.federalreserve.gov/econres/cindy-m-vojtech.htm
James Z. Wang: https://www.federalreserve.gov/econres/james-wang.htm

No 2018-020, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The new forward-looking credit loss provisioning standard, CECL, is intended to promote proactive provisioning as loan loss reserves can be conditioned on expectations of the economic cycle. We study the degree to which one modeling decision?expectations about the path of future house prices ? affects the size and timing of provisions for first-lien residential mortgage portfolios. While we find that provisions are generally less pro-cyclical compared to the current incurred loss standard, CECL may complicate the comparability of provisions across banks and time. Market participants will need to disentangle the degree to which variation in provisions across firms is driven by underlying risk versus differences in modeling assumptions.

Keywords: Accounting rule change; CECL; Mortgage loans; Model risk (search for similar items in EconPapers)
JEL-codes: G21 G28 M40 M48 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2018-03-09
New Economics Papers: this item is included in nep-ban and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.federalreserve.gov/econres/feds/files/2018020pap.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2018-20

DOI: 10.17016/FEDS.2018.020

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().