Agencies Issue Guidance on Final CECL Standard

The federal banking agencies today issued guidance on implementing the Financial Accounting Standards Board’s new loan loss accounting standard, which uses a current expected credit loss, or CECL, model. Under CECL, banks will be required to record, at the time of origination, credit losses expected throughout the life of the asset portfolio on loans and held-to-maturity securities — in contrast to today’s “incurred loss” accounting.

“This important accounting change requires the attention of each financial institution’s board of directors and senior management,” the agencies said, adding that they “support an implementation of the FASB’s new accounting standard that is both reasonable and practical, taking into consideration the size, complexity, and risk profile of each institution.”

The regulatory guidance provides information on CECL’s key elements, noting areas where it differs from current U.S. generally accepted accounting principles and emphasizing that they expect CECL to be “scalable to institutions of all sizes.” They added that CECL “does not specify a single method for measuring expected credit losses; rather, institutions should use judgment to develop estimation methods that are well documented, applied consistently over time, and faithfully estimate the collectability of financial assets by applying the principles in the new accounting standard.”

While the agencies said they did not expect that “smaller and less complex” banks will need to adopt “costly and complex models” to meet the new requirement, they noted that “institutions would need to consider how to adjust historical loss experience not only for current conditions as is required under the existing incurred loss methodology, but also for reasonable and supportable forecasts” of the future. They went on to say “system changes related to the collection and retention of data may be warranted” and that institutions may need to segment their portfolio further and retain more data longer than they have in the past.

The agencies also provided guidance on how they will apply the new standard to different classes of assets at the effective dates of 2020 and 2021 and outlined steps to take to remain in compliance as CECL is implemented. ABA will continue to work with FASB and the agencies to ensure consistent guidance for banks of all sizes. View ABA resources on CECL at For more information, contact ABA’s Mike Gullette.