09/09/26

Is CECL making community banks safer—or simply making banking more complicated and expensive?

That’s the question Federal Reserve Vice Chair for Supervision Michelle Bowman raises in a recent Wall Street Journal opinion piece, “How to Make Life Hard for Small Banks.” Bowman argues that the Current Expected Credit Loss standard has created significant costs and complexity for smaller institutions without delivering enough additional benefit. (The Wall Street Journal)

CECL was designed to improve how banks recognize potential credit losses by requiring them to estimate expected losses over the life of a loan rather than waiting until losses become probable. The goal was greater transparency and earlier recognition of risk.

But for community banks, implementation can come with a disproportionate burden.

Smaller institutions often have fewer resources, less data and simpler loan portfolios than large, complex banks. Yet they can face significant demands related to modeling, documentation, validation and qualitative adjustments.

Bowman has called for FASB to consider repealing CECL, exempting community banks or creating a practical expedient that would make the process more workable for smaller institutions. OBL and other industry groups have similarly raised concerns about CECL’s cost and complexity. 

The timing is significant. FASB is reviewing CECL’s implementation and considering whether changes are warranted.

For community bankers, this is an opportunity to ask an important question: Are we getting enough benefit from CECL to justify the resources required to maintain it?

Community banks have a responsibility to maintain strong credit-risk management and accurate financial reporting. But regulatory requirements should also recognize the differences between a local community bank and a global financial institution.

A more proportional approach could preserve the goal of recognizing credit risk while reducing unnecessary costs and complexity for smaller banks.

As FASB considers the future of CECL, community bankers should make sure their experiences are part of that conversation.