Allowances for loan losses under the transition to CECL during the pandemic

ABSTRACT

This article delineates the timelines for banks to implement the current expected credit loss ("CECL") model and examines the impact of the model on the timeliness of the financial information provided by banks about their loan loss allowances. Further, the article examines how the combination of CECL and the ongoing COVID-19 pandemic dramatically increase the estimation uncertainly of banks' loan loss allowances, and thus the potential for the Securities and Exchange Commission, bank regulators, and shareholders to question banks' CECL estimates in hindsight as the effects of the pandemic are observed. © 2020 Sheshunoff Information Services. All rights reserved.