CECL vs CCAR: banks fear loan-loss reserves mismatch

Lifetime loan loss estimates will look much worse under CCAR stress scenarios than accounting measure

US flag

US banks fear a clash is looming between a forthcoming new accounting standard and the US Federal Reserve’s annual round of Comprehensive Capital Analysis and Review (CCAR) stress tests.

The Current Expected Credit Loss (CECL) accounting standard, which is intended to better align accounting with risk management when it takes effect from 2020, requires banks to set aside reserves to cover potential lifetime loan losses based on their own internal forecasts. CCAR, however, requires banks to

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