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CECL Accounting Model using YieldBook Based CECL Allocation Calculator for...

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The Current Expected Credit Loss model (CECL) is the new accounting model FASB has issued for the recognition and measurement of credit losses for loans and debt securities.

Amounts that banks do not expect to collect will be recorded in an allowance for credit losses on Held-To-Maturity (HTM) and (Available-for-Sale (AFS) debt securities.

We will present the system approach to full cycle accounting for the debt securities under CECL.

The CECL model applies to the following types of Securities measured at amortized cost.

Corporate bonds, mortgage backed securities, municipal bonds and other fixed income instruments.

The FASB concluded that a AFS security should be assessed for impairment differently than an amortized cost asset being held to collect cash flows. Accordingly, the new model will apply to AFS debt securities while HTM debt securities will be assessed for impairment using the CECL model.

AFS - reserves assessed on an individual security (position) basis.

(When Principal Loss realized – from Payment shortfall)

1) Loss recorded through an allowance, instead of a direct write-off of amortized cost.

2) The allowance is limited to the difference between fair value and the amortized cost.

3) If the security has been distressed one day to 1 year, it has to be assessed for impairment because it has not been under water long enough to be recognized as an impairment loss.

4) Any subsequent changes to the fair value of the security after the balance sheet reported effective date are ignored.

HTM - reserves assessed on a pooled basis. (Grouped financial assets with similar risk characteristics)

1) Choose method for measuring losses (multiple methods are supported)

2) Determine historical loss experience on the evaluated pools/asset

3) Adjust historical loss experience for current conditions and forecasts

4) Revert to historical losses for periods for which reasonable forecasts cannot be made


Slavek Rotkiewicz

President, TPG Software

Rick Schnitger

Product Manager, TPG Software


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