CECL regulation explained: How it will impact banks, lending - Business Insider

, a consumer advocacy group that has pushed for a delay in the new rule.

Banks can't predict whether any individual loan will go sour, of course. But in the aggregate, historical experience and computer models can predict that, say, X% of a bank's subprime mortgages or Y% of its credit-card loans will default in a recession. The banks will use that information to estimate total future losses and set aside more reserves for them.

Just how big will vary from bank to bank, and depends significantly on where they see the economy heading. If banks foresee a recession — very possible in 2020 — they'll project higher loan losses and reserve more. When a recession hits, they say, that could create a vicious circle: Projections of future loan losses will rise, which will lead banks to set aside more reserves, so they'll have less money to lend, which will slow the economy further and thus cause more borrowers to default, leading to still higher reserves, and so on.

Banks have pressed their case with the FASB, members of Congress, and regulators, lobbying for modifications or a delay in CECL so that its impact could be studied further. In June, Rep. Vicente Gonzalez introduced a bill in the House to force a delay.

Seems a good rule to me...

retheauditors I would have expected the automated decisioning processes for consumer lending already identify these numbers, it is whether the directors follow through and provide for the potential bad debt. Remember they operate on the principle 'the optimum level of bad debt is non zero'.

Great explainer from rapoportmike Keep on writin’ Mike!

Liar 🤥

The Secret History of How Banks Assumed Control of the U.S. Economy

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