The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have new forward-looking predictive models for financial institutions to use when estimating how much to reserve against potential loan losses. The new impairment model from FASB, which applies to banks, savings and loans, credit unions, and non-bank lenders in the U.S., and global institutions traded on U.S. exchanges, is called Current Expected Credit Loss (CECL). The new impairment model from IASB, which applies to institutions based outside the United States, is a part of IFRS.
The methodologies are similar in that they both replace traditional reserve requirements based on historical losses with new predictive models incorporating past, present and future data. Details of successful implementation are included in this article.