The CARES Act allowed SEC filing banks (Not Smaller Reporting Companies) to temporarily postpone the effective date, January 1 2020, of the current expected credit loss (CECL) standard. A small portion of the SEC filing banks took advantage of the above option and have been reporting their allowances and provisions according to the Incurred Loss Model (ILM). This has presented the industry with a unique testbed for comparing the two standards, CECL and ILM, using Call Report data as reported by the banks in the two groups.
- How do allowances and provisions differ between the above groups/segments?
- Are there any characteristics of the banks (i.e. portfolio mix, maturity profile, asset size and geography) that could explain any variations in the allowance between the groups?
- Has CECL led to more procyclical allowances or with higher dispersion than ILM?
- What are some of the lessons learned for the future adopters of the standard, with less than two years for implementation?
For answers to the above questions, please read our article in the March 2021 issue, pp. 54-61, of The Risk Management Association Journal. https://www.rmahq.org/journalcurrentissue/.