The Current Expected Credit Loss accounting standard will go into effect for large SEC registrants in 2020, and for all other banks in 2023. This complex accounting standard would change how banks have to account for potential losses, requiring them to recognize upfront losses the moment they make a loan.
What Does It Mean For Consumers?
Should an economic downturn occur, banks will have to increase their estimated losses on a loan and will therefore need to increase their reserves. This means banks will have less money available to lend to communities at the moment they need it most, and economic downturns might be more severe and last longer as a result.
Congress Should Delay CECL
CECL needs to be reconsidered in depth. If the Financial Accounting Standards Board won’t consider a pause in implementation, Congress should put CECL on hold until everyone has a better understanding of how it will impact our communities and Americans’ access to credit, particularly during a recession. A thorough quantitative impact study should be done to determine the full implications of CECL and its effect on the availability of credit in communities nationwide.
CECL was mandated to be adopted in January 2020 for larger banks. However, the COVID-19 Relief bill -passed in December 2020 – gives banks additional flexibility in accounting for credit losses. The bill includes a provision- CECL Relief. Sec. 5401 – that extends temporary relief to financial institutions from complying with the CECL accounting standard through January 1, 2022.
Learn more in-depth about CECL here.