CECL and Capital Requirements
Reflecting new U.S. accounting standards transforming loan-loss reserving from an incurred- to expected-loss approach, the federal banking agencies have proposed to transition the capital impact of the new accounting rule but not to separate capital calculations from this new accounting methodology. They also plan to leave the treatment of the newly-structured reserves the same as that now applied to loan-loss reserves for purposes of determining capital adequacy, although they will reconsider this after seeing how CECL in fact affects regulatory capital and bank lending activities. Stress-test standards would not reflect CECL until the 2020 cycle, at which point some banks could experience significant shortfalls unless the stress-test methodology is revised to reflect the new approach to reserves and resulting resilience.