The American Bankers Association’s Snapshot is based on a composite of actual preliminary bank estimates of CECL’s potential impact received in March 2019 using their internal data and internal modeling applied across a range of lending products under both benign and stress scenarios. Data was provided by various banks that collectively hold more than 10% of loans in the industry. Data was collected only from larger banks because smaller banks generally have not yet developed or obtained modeling capabilities necessary to produce such data.
An analysis of credit loss estimates compiled by these banks appears to support the banking industry’s concern that significantly increased capital and earnings volatility will result from CECL. The snapshot of CECL allowances indicates loss allowances modeled under stress scenarios would spike to high levels, rather than build more gradually based on projections over the course of the economic cyclic. Such a scenario could potentially undermine bank lending. As you can see in the Snapshot, allowance estimates under stress scenarios also seem to impact consumer loan portfolios to a greater extent than commercial loan portfolios. This too raises the prospect of CECL exacerbating consumer harm at a time of crisis rather than helping.
This Snapshot provides only a limited look into the future, but ABA believes it underscores the need for regulators to conduct a more comprehensive Quantitative Impact Study (QIS) before moving forward.