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New Accounting Framework Faces Its First Test: CECL During the Pandemic, Accessible Data
Figure 1: Banking System Quarterly Net Charge-off Rate with Economic Indicators
| Date | Real GDP growth (left axis) | Unemployment rate (left axis) | Net charge-off rate (right axis) |
|---|---|---|---|
| 2004Q1 | 0.6% | 6% | 0.2% |
| 2004Q2 | 0.8% | 6% | 0.2% |
| 2004Q3 | 0.9% | 5% | 0.1% |
| 2004Q4 | 1.0% | 5% | 0.2% |
| 2005Q1 | 1.1% | 5% | 0.1% |
| 2005Q2 | 0.5% | 5% | 0.1% |
| 2005Q3 | 0.8% | 5% | 0.2% |
| 2005Q4 | 0.6% | 5% | 0.2% |
| 2006Q1 | 1.3% | 5% | 0.1% |
| 2006Q2 | 0.2% | 5% | 0.1% |
| 2006Q3 | 0.2% | 5% | 0.1% |
| 2006Q4 | 0.8% | 4% | 0.2% |
| 2007Q1 | 0.3% | 5% | 0.1% |
| 2007Q2 | 0.6% | 5% | 0.1% |
| 2007Q3 | 0.6% | 5% | 0.2% |
| 2007Q4 | 0.6% | 5% | 0.2% |
| 2008Q1 | -0.4% | 5% | 0.3% |
| 2008Q2 | 0.6% | 5% | 0.3% |
| 2008Q3 | -0.5% | 6% | 0.4% |
| 2008Q4 | -2.2% | 7% | 0.5% |
| 2009Q1 | -1.2% | 8% | 0.5% |
| 2009Q2 | -0.2% | 9% | 0.7% |
| 2009Q3 | 0.4% | 10% | 0.7% |
| 2009Q4 | 1.1% | 10% | 0.9% |
| 2010Q1 | 0.5% | 10% | 0.8% |
| 2010Q2 | 1.0% | 10% | 0.7% |
| 2010Q3 | 0.8% | 9% | 0.6% |
| 2010Q4 | 0.5% | 10% | 0.6% |
| 2011Q1 | -0.2% | 9% | 0.5% |
| 2011Q2 | 0.7% | 9% | 0.4% |
| 2011Q3 | 0.0% | 9% | 0.4% |
| 2011Q4 | 1.1% | 9% | 0.4% |
| 2012Q1 | 0.8% | 8% | 0.3% |
| 2012Q2 | 0.5% | 8% | 0.3% |
| 2012Q3 | 0.2% | 8% | 0.3% |
| 2012Q4 | 0.1% | 8% | 0.3% |
| 2013Q1 | 0.9% | 8% | 0.2% |
| 2013Q2 | 0.1% | 8% | 0.2% |
| 2013Q3 | 0.8% | 7% | 0.2% |
| 2013Q4 | 0.7% | 7% | 0.2% |
| 2014Q1 | -0.4% | 7% | 0.1% |
| 2014Q2 | 1.3% | 6% | 0.1% |
| 2014Q3 | 1.2% | 6% | 0.1% |
| 2014Q4 | 0.4% | 6% | 0.1% |
| 2015Q1 | 0.8% | 6% | 0.2% |
| 2015Q2 | 0.6% | 5% | 0.1% |
| 2015Q3 | 0.3% | 5% | 0.1% |
| 2015Q4 | 0.1% | 5% | 0.2% |
| 2016Q1 | 0.6% | 5% | 0.1% |
| 2016Q2 | 0.3% | 5% | 0.1% |
| 2016Q3 | 0.6% | 5% | 0.1% |
| 2016Q4 | 0.5% | 5% | 0.1% |
| 2017Q1 | 0.5% | 5% | 0.1% |
| 2017Q2 | 0.6% | 4% | 0.1% |
| 2017Q3 | 0.7% | 4% | 0.1% |
| 2017Q4 | 0.9% | 4% | 0.1% |
| 2018Q1 | 0.8% | 4% | 0.1% |
| 2018Q2 | 0.8% | 4% | 0.1% |
| 2018Q3 | 0.5% | 4% | 0.1% |
| 2018Q4 | 0.2% | 4% | 0.1% |
| 2019Q1 | 0.6% | 4% | 0.1% |
| 2019Q2 | 0.8% | 4% | 0.1% |
| 2019Q3 | 0.7% | 4% | 0.1% |
| 2019Q4 | 0.5% | 4% | 0.1% |
| 2020Q1 | -1.3% | 4% | 0.1% |
| 2020Q2 | -8.9% | 13% | 0.1% |
| 2020Q3 | 7.5% | 9% | 0.1% |
| 2020Q4 | 1.1% | 7% | 0.1% |
| 2021Q1 | 1.5% | 6% | 0.1% |
| 2021Q2 | 1.6% | 6% | 0.1% |
Note: Recessions are shaded in grey. The net charge-off rate is measured relative to total loans.
Sources: FRED, FR Y-9C, FFIEC Call Reports, and NBER.
Figure 2: Provision and Net Charge-off Rates around the 2007-09 Financial Crisis
As a fraction of total loans
| Date | Provision rate (left scale) | Net charge-off rate (left scale) | Allowances (right scale) |
|---|---|---|---|
| 2004Q1 | 0.0016 | -0.0018 | 0.0166 |
| 2004Q2 | 0.0014 | -0.0016 | 0.0159 |
| 2004Q3 | 0.0015 | -0.0015 | 0.0153 |
| 2004Q4 | 0.0017 | -0.0019 | 0.0147 |
| 2005Q1 | 0.0013 | -0.0014 | 0.0142 |
| 2005Q2 | 0.0013 | -0.0013 | 0.0137 |
| 2005Q3 | 0.0018 | -0.0016 | 0.0135 |
| 2005Q4 | 0.0017 | -0.0018 | 0.0129 |
| 2006Q1 | 0.0011 | -0.0010 | 0.0125 |
| 2006Q2 | 0.0012 | -0.0011 | 0.0122 |
| 2006Q3 | 0.0014 | -0.0013 | 0.0121 |
| 2006Q4 | 0.0019 | -0.0015 | 0.0120 |
| 2007Q1 | 0.0016 | -0.0014 | 0.0121 |
| 2007Q2 | 0.0019 | -0.0015 | 0.0121 |
| 2007Q3 | 0.0025 | -0.0017 | 0.0126 |
| 2007Q4 | 0.0046 | -0.0024 | 0.0145 |
| 2008Q1 | 0.0048 | -0.0027 | 0.0166 |
| 2008Q2 | 0.0060 | -0.0035 | 0.0189 |
| 2008Q3 | 0.0065 | -0.0039 | 0.0211 |
| 2008Q4 | 0.0093 | -0.0051 | 0.0245 |
| 2009Q1 | 0.0085 | -0.0053 | 0.0278 |
| 2009Q2 | 0.0095 | -0.0071 | 0.0306 |
| 2009Q3 | 0.0089 | -0.0075 | 0.0326 |
| 2009Q4 | 0.0093 | -0.0087 | 0.0336 |
| 2010Q1 | 0.0071 | -0.0076 | 0.0371 |
| 2010Q2 | 0.0057 | -0.0069 | 0.0361 |
| 2010Q3 | 0.0048 | -0.0063 | 0.0347 |
| 2010Q4 | 0.0045 | -0.0061 | 0.0330 |
| 2011Q1 | 0.0029 | -0.0049 | 0.0314 |
| 2011Q2 | 0.0027 | -0.0042 | 0.0295 |
| 2011Q3 | 0.0028 | -0.0040 | 0.0280 |
| 2011Q4 | 0.0027 | -0.0036 | 0.0265 |
| 2012Q1 | 0.0020 | -0.0030 | 0.0249 |
| 2012Q2 | 0.0019 | -0.0029 | 0.0236 |
| 2012Q3 | 0.0022 | -0.0032 | 0.0220 |
| 2012Q4 | 0.0020 | -0.0026 | 0.0212 |
| 2013Q1 | 0.0015 | -0.0022 | 0.0205 |
| 2013Q2 | 0.0012 | -0.0020 | 0.0195 |
| 2013Q3 | 0.0008 | -0.0016 | 0.0186 |
| 2013Q4 | 0.0011 | -0.0017 | 0.0175 |
Note: The increase in allowance in 2010:Q1 reflects the introduction of FAS 166 and FAS 167 that tightened the accounting for securitizations and consolidation of securitization entities, respectively, causing banks to recognize securitized assets on the balance sheet.
Sources: FR Y-9C filing firms and Call Report firms with filings not consolidated within included filings.
Figure 3: Allowances of CECL Adopters and Non-Adopters
Allowances (indexed to 2019:Q4=100)
| Date | Non-adopters | CECL adopters |
|---|---|---|
| 2019Q1 | 96 | 103 |
| 2019Q2 | 97 | 102 |
| 2019Q3 | 99 | 102 |
| 2019Q4 | 100 | 100 |
| 1/1/2020 | 136 | |
| 2020Q1 | 111 | 170 |
| 2020Q2 | 125 | 214 |
| 2020Q3 | 132 | 214 |
| 2020Q4 | 135 | 205 |
| 2021Q1 | 133 | 183 |
| 2021Q2 | 129 | 165 |
Note: The adoption of CECL results in a jump in allowances (of CECL adopters) on January 1, 2020.
Sources: FR Y-9C filing firms and Call Report firms with filings not consolidated within included filings.
Figure 4: Capital (CET1) Ratios of Jan. 1 CECL Adopters, Actual versus Estimates under ILM
CET1 Capital Ratio
| Date | Actual | No Transition Rule | Est. Range Under ILM (low) | Est. Range Under ILM (high) |
|---|---|---|---|---|
| 2019Q4 | 0.119 | |||
| 2020Q1 | 0.118 | 0.118 | 0.118 | 0.118 |
| 2020Q2 | 0.113 | 0.110 | 0.113 | 0.114 |
| 2020Q3 | 0.118 | 0.114 | 0.119 | 0.121 |
| 2020Q4 | 0.122 | 0.118 | 0.122 | 0.125 |
| 2021Q1 | 0.124 | 0.120 | 0.123 | 0.126 |
| 2021Q2 | 0.126 | 0.122 | 0.124 | 0.127 |
| 2021Q3 | 0.125 | 0.122 | 0.123 | 0.126 |
Note: CET1 capital ratio = Common equity tier 1 capital divided by risk-weighted assets.
Sources: FR Y-9C, FFIEC Call Reports, and authors’ analysis.
Figure 5: Estimated Average CECL Impact ($$\beta_p$$) on Allowances and Loan Growth, by Loan Type
| Loan type | Impact on Quarterly Loan Growth (pp) | Impact on Allowance/Loans (pp) | ||||
|---|---|---|---|---|---|---|
| estimate | confidence interval - lower bound | confidence interval - upper bound | estimate | confidence interval - lower bound | confidence interval - upper bound | |
| commercial | -0.49 | -1.21 | 0.24 | 0.23 | 0.02 | 0.43 |
| construction | 0.40 | -1.12 | 1.93 | 0.53 | 0.27 | 0.79 |
| commercial real estate (cre) | -0.11 | -0.74 | 0.52 | 0.35 | 0.20 | 0.51 |
| other consumer* | -2.53 | -4.60 | -0.45 | 0.82 | 0.41 | 1.23 |
| residential real estate (rre) | -0.31 | -1.18 | 0.56 | 0.32 | 0.21 | 0.43 |
Note: *Other consumer includes all consumer loans other than mortgage and credit cards, and primarily consists of student, auto, and installment loans. Our test rejects the hypothesis of parallel growth trends for other consumer loans prior to CECL adoption (2016-2019). See endnote 16 for further discussion.
Sources: FR Y-9C, FFIEC Call Reports, and authors’ analysis.