Policy Issues

CURRENT EXPECTED CREDIT LOSSES (CECL) ACCOUNTING STANDARD

ISSUE

The Financial Accounting Standards Board (FASB) issued a new expected credit loss accounting standard in June 2016. The new accounting standard introduces the current expected credit losses methodology (CECL) for estimating allowances for credit losses.

A business coalition that includes The Real Estate Roundtable wrote to the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC) to urge a delay in the implementation of the proposed Current Expected Credit Loss (CECL) accounting standard, which may begin to reduce aggregate bank lending as early as next year.

The new CECL model will change the way banks calculate reserves on assets, requiring certain financial institutions to estimate the expected loss over the life of a loan beginning in January 2020. 

For real estate, there is concern is that banks may reduce lending volumes as they build up additional capital reserves to be in compliance with CECL. The new standard may cut into earnings and regulatory capital by forcing some banks to boost their loan-loss reserves.  

FASB logo

Position

The Roundtable continues to urge the FASB and the Securities and Exchange Commission (SEC) to delay implementation of the CECL standard, which may begin to reduce aggregate bank lending as early as next year.

Background

Beginning in 2020, the Financial Accounting Standards Board (FASB) will require banks to estimate and report loan losses upon origination according to the new Current Expected Credit Loss (CECL) standard.

The new CECL standard will change the way banks calculate reserves on assets, requiring certain financial institutions to estimate the expected loss over the life of a loan beginning in January 2020.  For real estate, there is concern is that banks may reduce aggregate lending volumes as they build up additional capital reserves to be in compliance with CECL.

The accounting rule change was issued by the FASB in June 2016 as a result of the 2008 financial crisis.

The Roundtable continues to work constructively with the FASB and the SEC to ensure that credit capacity is not impaired.


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