Working Paper

How Did CECL Affect Bank Lending?

Abstract: Adoption of the current expected credit losses (CECL) methodology for loan loss provisioning significantly altered how banks recognize loan losses in their capital calculations. Because capital is a more costly funding source for banks, the accounting change affects banks' cost of funding loans. Using variation in the timing and effect of CECL implementation across firms and loan types, this paper finds that loan loss allowances have a similar causal effect on credit supply as capital requirements. Within our sample, the effect of CECL adoption on loan allowances reduced loan growth by approximately 77 basis points annually in the years following adoption. We find no significant effect of CECL on capital distributions.

JEL Classification: G21; G28; M41; M48;

https://doi.org/10.17016/FEDS.2026.066

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2026-09-25

Number: 2026-066