Sifting through the CECL noise

What does it all mean for smaller institutions?

The Current Expected Credit Loss (CECL) standard has been a contentious subject since the Financial Accounting Standards Board (FASB) issued it in 2016. Recently, the debate has heated up with FASB, Congress, federal financial regulatory agencies and industry advocates all weighing in on the new approach that would require institutions to estimate expected losses over the life of a loan.

Unfortunately, all that talk hasn’t yielded a consensus. We still don’t know with absolute certainty whether CECL is a done deal: Depending on whom you listen to, CECL might go through as planned (FASB), it might get delayed or cancelled (certain members of Congress), and its implementation will impact capital reserves and consumer lending (regulatory agencies and industry advocates).

This confusing debate increases the temptation for financial institutions to put CECL preparation on hold until the question is completely settled. However, once you sift through the noise, the tremendous risk of not preparing for CECL becomes apparent.



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