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Your old incurred loss methodology is no longer adequate

Why has FASB switched to the CECL methodology? Because current U.S. GAAP restricts the ability to record expected credit losses that do not yet meet the “probable” threshold.

Investors want more information on losses for the life of the loans, which means a transition to a forward-looking methodology that includes predictive data and analysis. This will test financial institutions who lack both the necessary data and experience with ALLL and CECL estimates.

This CECL backgrounder from the American Banking Association has more details:

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Harris Robinson

Harris has 20+ years’ experience in accounting and financial services, with extensive experience providing bank credit advisory services. He manages Diligent’s credit advisory services and performance assessments for investment and commercial banks, including capital assessments based on portfolio and ALLL analysis.

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