What is CECL (Current Expected Credit Losses)?
CECL, Current Expected Credit Losses, is the FASB accounting standard (ASC 326) that replaced the old "incurred loss" model with a "lifetime expected loss" model. Under CECL, financial institutions must estimate and reserve for expected credit losses over the entire remaining life of a loan at the time of origination, not just when losses become probable. This forward-looking approach requires institutions to consider historical loss data, current conditions, and reasonable and supportable forecasts. CECL applies to all financial assets measured at amortized cost, including loans, held-to-maturity securities, and off-balance-sheet credit exposures.
How LoanBook Uses CECL
LoanBook provides integrated CECL analytics with three-scenario weighted expected loss calculation (Base 60%, Adverse 30%, Severely Adverse 10%). The platform uses the Default Model for probability of default and the Severity Model for loss given default, and supports vintage analysis, portfolio segmentation by sector, and reporting for credit unions.
Frequently Asked Questions
Does CECL apply to credit unions?
Yes. NCUA adopted CECL for all federally insured credit unions. Smaller credit unions (under $10M in assets) may use a simplified method, but all credit unions must comply.
What methods can be used for CECL?
Common methods include weighted average remaining maturity (WARM), vintage analysis, probability of default/loss given default (PD/LGD), and discounted cash flow. LoanBook supports PD/LGD with sector-specific default curves and scenario weighting.
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