How Did CECL Affect Bank Lending?

Ben Ranish and Cindy M. Vojtech
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Ben Ranish: https://www.federalreserve.gov/econres/ben-ranish.htm
Cindy M. Vojtech: https://www.federalreserve.gov/econres/cindy-m-vojtech.htm

No 2026-066, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Adoption of the current expected credit losses (CECL) methodology for loan loss provisioning significantly altered how banks recognize loan losses in their capital calculations. Because capital is a more costly funding source for banks, the accounting change affects banks' cost of funding loans. Using variation in the timing and effect of CECL implementation across firms and loan types, this paper finds that loan loss allowances have a similar causal effect on credit supply as capital requirements. Within our sample, the effect of CECL adoption on loan allowances reduced loan growth by approximately 77 basis points annually in the years following adoption. We find no significant effect of CECL on capital distributions.

Keywords: current expected credit losses (CECL) methodology; bank lending; loan loss provisioning (search for similar items in EconPapers)
JEL-codes: G21 G28 M41 M48 (search for similar items in EconPapers)
Pages: 46 p.
Date: 2026-09-25
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:103843

DOI: 10.17016/FEDS.2026.066

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