CECL: Current Expected Credit Loss Accounting Standard

Insight: CECL: Current Expected Credit Loss Accounting Standard

The financial crisis of 2007-2008 demonstrated that the Allowance for Loan and Lease Losses (ALLL) accounting standard does not allow for timely adjustment of reserve levels based on reasonable expectation of future conditions. Under this method, banks set aside their reserves on an incurred-loss basis. The reserves were only for loans showing signs of trouble and typically only for 12-month periods. The FASB reviewed the standard and replaced it with CECL. Under CECL banks and other firms are required to set aside reserves for their entire book of loans based on estimated losses for the full life of those loans.

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