Fed to unveil second tool aimed at assisting CECL compliance by community banks

A spreadsheet tool to help smaller banks deal with a new accounting standard on current expected credit losses (CECL) by using the banks’ loan-level data and management assumptions will be released next week by the Federal Reserve, the agency said Tuesday.

In a release, the central bank said its Expected Losses Estimator (ELE) will be launched during an “Ask the Fed” webinar June 16. It is designed to help community banks comply with the Financial Accounting Standards Board’s (FASB) CECL accounting standard.

The agency said the tool takes a bank’s loan-level data and assumptions as entered in by bank management and automates the Weighted-Average Remaining Maturity (WARM) method. The June 16 session, the Fed said, will walk through the spreadsheet-based tool intended to assist community financial institutions in implementing CECL.

According to the agency, the ELE spreadsheet tool builds on the Scaled CECL Allowance for Losses Estimator (SCALE), a tool released nearly a year ago (in July 2021). That device, the agency said, is aimed at helping smaller banks calculate their allowances under the CECL accounting standard. It draws on publicly available regulatory and industry data to aid community banks with assets of less than $1 billion, according to the Fed.

The Fed asserts that the ELE and SCALE tools, in combination, “provide two simplified approaches to CECL calculations for smaller community financial institutions.”

The CECL accounting standard has proven to be somewhat controversial, as banks, credit unions and other financial institutions have complained about the costs of implementation outweighing the benefits, no material change resulting in banks’ allowance for loan and lease losses balances, and that additional guidance, communications, and training on CECL are needed. Compliance with the new accounting standard began in 2020 and will include most financial institutions at the end of this year.

Federal Reserve announces it will soon release second tool to help community financial institutions implement the Current Expected Credit Losses (CECL) accounting standard