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CECL Down but Not Out

March 27, 2020, American Banker

Jeremy Newell spoke with the American Banker to discuss the new coronavirus stimulus package that includes language allowing lenders that have already implemented the Current Expected Credit Losses to delay compliance until the end of the national emergency. According to Mr. Newell, while two and a half years seems like a long time, their impending conversion still represents a huge burden during a time of crisis. “There are real changes to reporting and operating infrastructure. It’s a big project with timelines that extend out well over a year,” says Mr. Newell.

 

He says, “When firms estimate expected credit losses upfront, they do that using a near-term economic forecast [that] can change dramatically when you go from a benign environment to a crisis.” CECL will require much higher reserves for new loans than it did a few months ago. Absent steps to address those accounting and regulatory capital impacts, that’s a big disincentive to lend and creates significant new barriers to extending credit. We’re living through precisely the kind of situation in which CECL would have the biggest procyclical impact.”

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