WHITE PAPER: Current Expected Credit Loss (CECL)
Lessons from the Federal Government Experience with Lifetime Expected Credit Loss
Federal loan programs that oversee loan and loan guarantee portfolios — such as the Troubled Asset Relief Program (TARP), the Federal Housing Administration (FHA) Mortgage Insurance Program, Department of Veterans Affairs (VA) Home Loan Program, and the Department of Agriculture (USDA) Rural Development Program — have been operating under an accounting framework directly analogous to the new current expected credit loss (CECL) standard for the last 25 years. Since 1991, federal agencies have had to estimate lifetime credit losses and use these estimates on agency balance sheets, income statements, and to inform congressional appropriations that cover the costs of agencies’ credit programs. Today, the US government holds more than $3.5 trillion in outstanding exposure across more than a hundred different credit programs — all of which is accounted, reported, and budgeted under a lifetime credit loss approach. As of the end of 2016, that exposure was represented by a roughly $100B liability on the federal balance sheet.
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