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Webinar Announced for July 21, 2017 at 3:00pm (CDT)

CECL Accounting for Debt Securities

The Current Expected Credit Loss (CECL) model is the new accounting model issued by the Federal Accounting Standards Board (FASB) 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.

TPG will present and discuss our system's approach to debt securities accounting 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.

FASB concluded that an 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 is realized through payment shortfall:

  1. Loss is 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 1 day to 1 year, it has to be assessed for impairment because it has not been underwater 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 the method for measuring losses (multiple methods are supported).
  2. Determine historical loss experience on the evaluated poos/assets.
  3. Adjust historical loss experience for current conditions and forecasts.
  4. Revert to historical losses for periods for which reasonable forecasts cannot be made.


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