
Originally published as part of the "On the Economy Blog". This post is part of a blog series titled “Supervising Our Nation’s Financial Institutions."
Last month, I reviewed a new accounting standard for banks called the current expected credit loss model, dubbed CECL. The financial crisis made it apparent that the current methodology for credit loss reserves fell short.
CECL is designed to improve the quality of financial information, especially approaching and during times of economic stress.
Gearing UpThe new accounting standard is being phased in, beginning in 2020 with the nation’s largest publicly traded banks. A recent proposal by rulemakers will defer transition for most other institutions—such as community banks and credit unions—until January 2023.1
Information provided by community banks about CECL preparation indicate that most have started the implementation process by gathering and analyzing data. Some have gone further by selecting a methodology and testing it.
Despite the progress, many bankers continue to express concerns about the transition. These concerns typically center on the time required to prepare, vendor fees, the time and effort needed to obtain and organize data, and even the uncertainty of knowing if they have “gotten it right.”
Read More about Managing CECL Change: How Banks Can Prepare for the New Accounting Standard