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Friday, June 17, 2016

FASB Issues Final Loan Loss Accounting Standard

As long expected, the Financial Accounting Standards issued its new loan loss accounting framework, also known as the current expected credit loss model. Bank regulators have described CECL as the “biggest change to bank accounting ever.” First proposed in 2012, CECL effectively requires bankers to record, at the time of origination, credit losses expected throughout the life of the asset portfolio on loans and held-to-maturity securities. This is in contrast to today’s “incurred loss” accounting, under which losses are recorded when it is probable that a loss event has occurred.

Though the exact amount remains unknown, the new standard is expected to increase the allowance for loan and leases losses throughout the industry. CECL will require significant operational changes at all banks, including collecting and analyzing the type of data that supports the modeling of the life-of-loan loss expectation, as well as forecasting and quantifying losses in the future.

ABA President and CEO Rob Nichols said,
While we continue to have strong concerns with the costs related to CECL’s life of loan loss concept, we are committed to working with both regulators and auditors to ensure banks of all sizes can meet the implementation challenges of the new standard. We appreciate the significant time and consideration FASB has given to bankers’ views as they worked on this extremely complex and difficult issue.
ABA staff have worked closely with FASB to advocate targeted improvements in the standard and to ensure it can be implemented by banks of all sizes.

Read the standard.

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