Current Expected Credit Losses and Consumer Loans

Abstract

We use data from TransUnion, a large U.S. credit bureau covering millions of individual consumer loans, to examine the transition to the Current Expected Credit Loss (CECL) accounting standard and its effects on banks' loan pricing and lending decisions. We find no indication that the incremental loss reserve requirements of originating a new loan under the CECL standard prompted banks to increase interest rates or to ration loan sizes to consumers. We find identical results when we exclude the months around the Covid-19 pandemic and when we restrict our attention to the group of banks with lower levels of regulatory capital. Our results are of potential interest to the ongoing policy debate between standard setters and members of the financial industry around the potential effects that CECL might have on access and price of credit.

Keywords: CECL; Bank Lending; Consumer Loans; Real Effects

JEL Classification: G21; G28; M41; M48