“The Impact of the Current Expected Credit Loss Standard (CECL) on the Timing and Comparability of Reserves”
Congratulations to Sarah Chae, Robert F. Sarama, Cindy M. Vojtech, and James Wang, all from the Federal Reserve Board of Governors, recipients of the 2018 MBAA-International Distinguished Paper Award in Accounting. Their research examines the new forward-looking credit loss provisioning standard, CECL, which is intended to promote proactive provisioning based on future macroeconomic expectations. In the context of first-lien mortgage loans, they study the degree to which these expectations affect the size and timing of provisions. Findings are that forward-looking provisions are generally less pro-cyclical than the current incurred loss standard, but 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 verses differences in modeling assumptions. The authors were presented with the award at the 2018 MBAA-International conference, April 18-20, in Chicago.