What to Expect When You're Expecting (Credit Losses

She is also 7 a visiting professor companies have had to implement the new model, collected on the financial asset.” A company will of accounting at it would be helpful to discuss the change in meth- adjust the assets for expected credit losses, as op- the Robert Day odology under the accounting model and the im- posed to incurred credit losses, as was the case un- School of Economics pact that us. [...] This might equal to the difference between the amortized cost of the have a disparate impact, depending on the type of the firm or financial asset and the net amount expected to be collected nature of its credit exposures. [...] time credit losses are recorded at the time that the assets are In particular, the Department of the Treasury and the Finan- acquired. [...] tentially lessened the impact of the crisis, when banks had Under the new model, the allowance represents not probable to recognize the losses through a sudden series of provi- incurred losses, but rather expected credit losses over the life sions to the loan loss allowance, thus reducing earnings and of the asset, which are unlikely to be $0. [...] Thus, for the same regulatory capital.”14 financial asset and under the same economic conditions, the On the other side of the debate, critics expressed net amount for the financial asset on the balance sheet would concern that CECL would worsen economic downturns.