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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
CECL and the Credit Cycle
Bert Loudis
Benjamin Ranish
Abstract

We find that that the Current Expected Credit Loss (CECL) standard would slightly dampen fluctuations in bank lending over the economic cycle. In particular, if the CECL standard had always been in place, we estimate that lending would have grown more slowly leading up to the financial crisis and more rapidly afterwards. We arrive at this conclusion by estimating historical allowances under CECL and modeling how the impact on accounting variables would have affected banks' lending and capital distributions. We consider a variety of approaches to address uncertainty regarding the management of bank capital and predictability of credit losses.


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Bert Loudis & Benjamin Ranish, CECL and the Credit Cycle, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2019-061, Aug 2019.
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Keywords: Current expected credit loss ; Allowance for Loan and Lease Losses ; Accounting policy
DOI: 10.17016/FEDS.2019.061
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