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CECL Implementation: Tales from the CECL Trail

Valuant’s Bill Bossong was a featured speaker at the SC Banker’s Association Asset Liability Management Conference on May 3, 2018.


Bill presented on the key differences between ILM and CECL and the effect that CECL will have on financial organizations of all sizes.

Keep reading for key takeaways from the presentation. 

What is CECL?

The new current expected credit loss guidance commonly referred to as “CECL” was developed in response to the global financial crisis, which began in late 2007. CECL introduces new dynamics for financial institutions in their asset planning and management.

When will it affect my business?

With a staggered rollout, many people aren’t sure when CECL regulations will affect them. Use this flowchart to make sure you’re not caught off guard. 

What are the potential outcomes of CECL?

CECL could make banks deploy funds to increase the allowance to account for lifetime loan losses, reducing their available capital. Regulators have proposed allowing financial institutions to adopt a phase-in approach to space out this initial hit over three years to account for future economic uncertainty.

The potential increase in the allowance from CECL may simply cause banks to hold more capital. CECL has the potential to be very procyclical and could discourage loan growth, especially during recessionary periods, in addition to making financial statements less comparable and less useful. Procyclicality is defined as the timing lag that occurs between loan losses and the related allowance level. This means banks often have too few resources at the height of a credit crisis and too many reserves when credit recovers. Regulators have disputed that CECL will be procyclical, but implementation questions still need to be resolved to understand the full impact. 

Source: SNL Financial

What are the differences between ILM and CECL?


It’s clear that the implementation of the Current Expected Credit Loss (CECL) standard is a major disruption to the financial services industry, and the full extent of the impact isn’t known yet. There could be many unintended consequences for financial services institutions. Now is the time to prepare yourself for the coming changes so you can better weather the storm. Read more about CECL Readiness

More articles you may be interested in

As part of an annual study that began in 2020, Valuant conducts analysis on ASC 326, commonly referred to as “CECL”. The study contains key data statistics and insights around the US Regional and Community Banking sectors and the impact CECL has on their Allowance for Credit Loss (ACL) Coverage Ratios.

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