CECL and the Credit Cycle

We find that that the Current Expected Credit Loss (CECL) standard would slightlydampen fluctuations in bank lending over the economic cycle. In particular, if the CECLstandard had always been in place, we estimate that lending would have grown more slowlyleading up to the financial crisis and more rapidly afterwards. We arrive at this conclusion byestimating historical allowances under CECL and modeling how the impact on accountingvariables would have affected banks' lending and capital distributions. We consider a variety ofapproaches to address uncertainty regarding the management of bank capital and predictability of credit losses