Cecl and the Credit Cycle
37 Pages Posted: 22 Oct 2019 Last revised: 7 Jul 2021
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: Suggested Citation