COVID-19 Offers the First Big Test for the CECL Accounting Standard

No models could have foreseen the depth of our current downturn, but executives can take action to mitigate risk.

The current expected credit losses (CECL) accounting standard that was put into place after the global financial crisis has faced questions since its inception. Assuming its implementation to mid-size institutions will not be delayed, we might soon receive answers.

When banks set their CECL reserves earlier this year, they might have accounted for a mild recession, especially given talk late last summer of a downturn. But it’s doubtful they foresaw the havoc being wrought by COVID-19: the stalled economies, slashes in consumer spending and our first bear market in over a decade.