Current Expected Credit Losses (CECL) Standard and Banks' Information Production

Sehwa Kim (), Seil Kim (), Anya V. Kleymenova and Rongchen Li ()
Additional contact information
Sehwa Kim: https://business.columbia.edu/faculty/people/sehwa-kim
Seil Kim: https://zicklin.baruch.cuny.edu/faculty-profile/seil-kim/
Anya V. Kleymenova: https://www.federalreserve.gov/econres/anya-v-kleymenova.htm

No 2023-063, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We examine whether the adoption of the current expected credit losses (CECL) model, which reflects forward-looking information in loan loss provisions (LLP), improves banks’ information production. Consistent with better information production, we find changes in CECL banks' financial reporting and operations. First, these banks' loan loss provisions become timelier and better reflect future local economic conditions. Second, CECL banks disclose longer, more forward-looking, and more quantitative LLP information. Lastly, they have fewer loan defaults after adopting CECL. These improvements are greater for banks that invest more in CECL-related information systems and human capital and even more salient for larger banks. Our findings suggest that banks' information production is improved under a more forward-looking accounting standard. However, these improvements are greater for banks with more resources to invest in related technology and human capital.

Keywords: Current Expected Credit Losses (CECL); Banks; Information Production; Loan Loss Provisioning (search for similar items in EconPapers)
JEL-codes: E32 G21 G28 M41 M48 (search for similar items in EconPapers)
Pages: 108 p.
Date: 2023-09-29
New Economics Papers: this item is included in nep-acc and nep-ban
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2023-63

DOI: 10.17016/FEDS.2023.063

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