Current Expected Credit Losses and consumer loans

João Granja and Fabian Nagel

Journal of Accounting and Economics, 2025, vol. 80, issue 1

Abstract: We use data from TransUnion, a large U.S. credit bureau covering millions of individual consumer loans, to examine the transition to the Current Expected Credit Loss (CECL) accounting standard and to provide novel evidence about the impact that raising reserve requirements has on banks’ pricing and lending decisions in the U.S. consumer lending market. We find that greater reserve requirements following the adoption of CECL induce a statistically significant but economically moderate increase in loan interest rates. The effects are more pronounced for weakly-capitalized banks and even more so for underprivileged individuals borrowing from weakly-capitalized banks. Our evidence informs the ongoing policy debate between standard setters and members of the financial industry about the potential effects of CECL on credit markets.

Keywords: CECL; Bank lending; Consumer loans; Real effects (search for similar items in EconPapers)
JEL-codes: G21 G28 M41 M48 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:80:y:2025:i:1:s0165410125000175

DOI: 10.1016/j.jacceco.2025.101781

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