Treasury Inconclusive on CECL Effects, Calls for Further Study

While noting emerging indicators that credit availability declined and lending standards tightened in early 2020, the Treasury Department yesterday said it is difficult to find a link between these trends and the current expected credit loss framework due to the coronavirus pandemic.

“A definitive assessment of the impact of CECL on regulatory capital is not currently feasible, in light of the state of CECL implementation across financial institutions and current market dynamics,” Treasury said in a congressionally mandated report. “More information is needed before reaching conclusions concerning any potential changes to regulatory capital requirements that may be necessitated by CECL.”

Treasury recommended that the banking agencies continue to monitor CECL’s effects on regulatory capital, extending transitional relief as needed; that the Financial Accounting Standards Board further study CECL and coordinate with the banking agencies; that FASB analyze the timing of the accounting recognition of fee revenues; and that FASB and the agencies reexamine the application of CECL to smaller lenders.