ABA’s Gullette: CECL Could Imperil Credit in Economic Downturn

With 75% of bank investors now opposed to the current expected credit loss standard, American Bankers Association SVP Mike Gullette highlighted the potential consequences the Financial Accounting Standards Board’s current expected credit loss standard is likely to have for lenders and the U.S. economy. In a Financial Times letter to the editor, Gullette noted that give its procyclical nature, CECL “could actually make any new crisis even worse” and “prevent banks from lending at exactly the moment the nation would want them lending to help the economy rise out of an economic slump.”

He added that CECL depends on economic forecasting, which can be especially difficult at longer time horizons. “CECL models being deployed by larger banks show that if CECL had been in effect during the crisis, it would have made the recession deeper and longer by further restricting lending,” he wrote.

With bipartisan legislation pending in both the House and Senate to halt CECL’s implementation until a quantitative impact study can be conducted, Gullette urged support for these bills, noting that they do not seek to rewrite CECL but instead highlight that the standard is in need of “careful, clear-eyed re-examination.”