Treasury report on CECL standard is inconclusive

By Ken Tysiac

Market conditions during the coronavirus pandemic prevent a definitive assessment of the impact of FASB’s new standard on accounting for credit losses, according to a Treasury report issued this week.

According to the congressionally mandated report, drawing conclusions regarding the current expected credit losses (CECL) standard’s impact since its initial implementation in early 2020 is a challenge because:

  • The standard has not been fully implemented by all entities; and
  • Market factors related to the pandemic, including government responses, have affected the economy, financial institutions, and the dynamics of borrowing and lending.

The report states that some information has emerged indicating that credit availability declined and lending standards tightened in some financial product categories in early 2020. But identifying a definitive link between these trends and the introduction of the new credit loss standard is difficult because of the pandemic, the report said.

FASB’s new credit loss standard is one of the most consequential standards that financial institutions have ever had to implement. The standard was developed in response to the global financial crisis that began in 2007 and introduces a new model that uses forward-looking information to estimate contractual cash flows that are not expected to be collected.

The standard has encountered opposition from some factions, particularly in the banking industry, over concern that it is difficult to implement and may reduce banks’ capacity to lend, particularly in an economic downturn.

Earlier this year, Congress directed Treasury to study whether changes are needed to the regulatory capital requirements necessitated by the new standard. In the report, Treasury recommends that:

  • Regulators should continue to monitor the effects of the standard on regulatory capital and financial institution lending practices, and calibrate capital requirements, as necessary.
  • Regulators should monitor the use and impact of transitional relief granted, and extend or amend the relief as necessary.
  • FASB should further study the standard’s anticipated benefits.
  • FASB should expand its efforts to consult and coordinate with regulators to understand and take into account the regulatory effects of the standard on financial institutions.
  • FASB should, in consultation with relevant stakeholders, explore the costs and benefits of further aligning the timing of the accounting recognition of fee revenues associated with financial assets under GAAP with the earlier accounting recognition of potential credit losses under the new standard.
  • FASB, together with regulators, should examine the application of the new standard to smaller lenders.

FASB is studying the report, according to a spokesperson.

The report states that Treasury supports the goals of the new standard, including providing users of financial statements more forward-looking information and presenting assets on financial statements in a manner that reflects amounts expected to be collected.

Treasury also recognizes the seriousness of the concerns that have been raised regarding the standard’s potential effects on regulatory capital, lenders, borrowers, and the U.S. economy, according to the report.

Ken Tysiac ( is the JofA’s editorial director.


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