With the nation’s largest banks now implementing the current expected credit loss standard, the American Bankers Association continues to call for a quantitative impact study that would analyze the full effect of the standard on both bank capital and the economy. In a statement for the record submitted ahead of a House Financial Services subcommittee hearing tomorrow, ABA emphasized that the CECL standard is expected to increase the volatility of bank regulatory capital, and constrain lending in an economic downturn.
“ABA believes that CECL will raise the cost and reduce the availability of credit in most cases, shift the emphasis from consumer lending to commercial lending, and favor short term loans over longer term ones like commercial real estate, residential mortgages, and student loans,” ABA said. “Given the inherent procyclicality built into CECL, the next economic downturn is likely to be made more severe with banks less able to make loans so critical to restarting a stalled economy.”
ABA added that the standard is likely have a significant effect on community banks in particular, and noted that a quantitative impact study should address the implementation costs of CECL for smaller institutions.