CECL and the Credit Cycle

Bert Loudis and Ben Ranish
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Ben Ranish: https://www.federalreserve.gov/econres/ben-ranish.htm

No 2019-061, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

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.

Keywords: Current expected credit loss; Allowance for Loan and Lease Losses; Accounting policy (search for similar items in EconPapers)
JEL-codes: E1 E3 G21 G28 M41 M48 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2019-08
New Economics Papers: this item is included in nep-acc, nep-ban, nep-mac and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2019-61

DOI: 10.17016/FEDS.2019.061

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