The Accounting Standards Update known as CECL has been a long time coming. The new allowance guidance enables financial institutions to put aside reserves based on a reasonable and supportable forecast of future conditions. As such, it tries to resolve the “too little/too late” problem, allowing financial institutions to reserve for downturns during good times.
We set out to estimate, based on 14 top financial institutions, a lower- and upper-bound current expected credit loss (CECL) estimate as of March 31, 2020. Using individual institutions’ experiences and a few other heuristics measures, we seek a method that can help triangulate on a reasonable range of reserves and establish a methodology that can be used for future quarters.
In this paper we will: