Amid the COVID-19 pandemic, the Financial Accounting Standards Board has come under pressure to relax its credit losses standard as banks and other financial institutions see the value of their assets plunging from the sell-off in the capital markets.
According to Jonathan Jacobs, Managing Director in the Valuation Services practice, "All banks, all institutions have to be CECL compliant and have to have CECL reserves as of the first quarter of 2020."
"The banks and financial institutions have a lot more resources on it because their balance sheets are based on financial instruments, specifically banks with loans. The uncertainty with the coronavirus impacts the underlying borrower's credit. There's a deterioration, and as part of CECL you have to measure the deterioration of credit to put up a reserve, by looking at not only how the loan and the borrower have performed in the past, but given the current economic environment that we are in today, as well as a reasonable supportable forecast of what might happen to the underlying credit quality of the borrower," Jonathan continued.
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