Fed could soften CECL impact on stress tests, banks say

Risk USA: Firms may be allowed to spread impact of projected losses across CCAR cycle

The Fed has yet to give formal guidance on whether banks must assume perfect foresight of loan losses when completing CCAR

With the clock ticking towards implementation of the US’s new Current Expected Credit Loss (CECL) accounting standard, banks are increasingly hopeful regulators will give ground on a conflict between the regime and the Federal Reserve’s annual stress testing programme.

CECL requires banks to set aside provisions to cover potential losses on all loans using a bank’s own macroeconomic forecasts and information about past loss history. The aim is to arrive at a realistic view of future losses.

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