Cecl and the Credit Cycle

37 Pages Posted: 22 Oct 2019 Last revised: 7 Jul 2021

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, 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.

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

Suggested Citation

Loudis, Bert and Ranish, Benjamin, Cecl and the Credit Cycle (August, 2019). FEDS Working Paper No. 2019-61, Available at SSRN: https://ssrn.com/abstract=3473045 or http://dx.doi.org/10.17016/FEDS.2019.061

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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