Home About Latest Browse RSS Advanced Search

Board of Governors of the Federal Reserve System (U.S.)
Finance and Economics Discussion Series
The Impact of the Current Expected Credit Loss Standard (CECL) on the Timing and Comparability of Reserves
Sarah Chae
Robert F. Sarama
Cindy M. Vojtech
James Z. Wang
Abstract

The new forward-looking credit loss provisioning standard, CECL, is intended to promote proactive provisioning as loan loss reserves can be conditioned on expectations of the economic cycle. We study the degree to which one modeling decision–expectations about the path of future house prices – affects the size and timing of provisions for first-lien residential mortgage portfolios. While we find that provisions are generally less pro-cyclical compared to the current incurred loss standard, CECL may complicate the comparability of provisions across banks and time. Market participants will need to disentangle the degree to which variation in provisions across firms is driven by underlying risk versus differences in modeling assumptions.


Download Full text
Cite this item
Sarah Chae & Robert F. Sarama & Cindy M. Vojtech & James Z. Wang, The Impact of the Current Expected Credit Loss Standard (CECL) on the Timing and Comparability of Reserves, Board of Governors of the Federal Reserve System (U.S.), Finance and Economics Discussion Series 2018-020, 09 Mar 2018.
More from this series
JEL Classification:
Subject headings:
Keywords: Accounting rule change ; CECL ; Mortgage loans ; Model risk
DOI: 10.17016/FEDS.2018.020
For corrections, contact Franz Osorio ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal