Banks' Accumulated Credit Losses in the First Quarter

Abstract: The aggregate allowance for credit losses (ACL) at a set of large banks increased by 65 percent in the first quarter of 2020.1 The increase was due in approximately equal parts to two developments. First, the banks increased their ACL on January 1 to conform to a change in the method of estimating credit losses, from the incurred loss model to current expected credit loss (CECL). Second, the banks increased their ACL to cover an increase in expected credit losses. The magnitude of the ACL increase—commonly referred to as a "build"—at each bank depends on a variety of factors, but banks typically cited the increase in expected losses due to COVID-19 as a major determinant. This post reviews the change in accounting standards, provides some context for the ACL build, and explores the first-quarter increase in greater detail.

Keywords: COVID-19;

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Bibliographic Information

Provider: Federal Reserve Bank of Atlanta

Source: Notes from the Vault

Publication Date: 2020-05-29