CECL and the Credit Cycle

37 Pages Posted: 30 Aug 2019

See all articles by Bert Loudis

Bert Loudis

Board of Governors of the Federal Reserve System

Benjamin Ranish

Board of Governors of the Federal Reserve System

Date Written: August 19, 2019

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

JEL Classification: E1, E3, G21, G28, M41, M48

Suggested Citation

Loudis, Bert and Ranish, Benjamin, CECL and the Credit Cycle (August 19, 2019). Available at SSRN: https://ssrn.com/abstract=3443142 or http://dx.doi.org/10.2139/ssrn.3443142

Bert Loudis

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Benjamin Ranish (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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