The good, the bad, and the reserved

The new CECL accounting standards are expected to raise reserves and concern alike, but there could be some upsides, too.

Effective Jan. 1, 2022, the nation’s credit unions will face what consensus holds is the biggest accounting change for financial institutions in decades.

That’s when member-owned cooperatives will be required to adhere to the current expected credit loss (CECL) methodology introduced by the Financial Accounting Standards Board in 2016.

In a nutshell, CECL will require credit unions, and other lenders, to predict and account for expected losses over the life of a loan, instead of the current generally accepted accounting principles (GAAP) that require losses to occur before they’re recognized on the books.

The forward-looking approach was created to help shock-proof portfolios against the kind of credit losses that shook the economy after the financial crisis that began in 2007. But it also will have effects seen and unforeseen on how credit unions go about their business, stakeholders say.

 

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