Experimental Evidence on the Impact of Replacing the Incurred Credit Loss Model of Bank Loan Loss Provisions with the International or US Accounting Standards Boards’ Expected Credit Loss Models

Our objective is to test-bed the new Expected Credit Loss (ECL) and Current Expected Credit Loss (CECL) models for bank credit loss accounting to identify the potential consequences of their implementation. In particular, whether and how ECL and CECL approaches could lead to divergence in credit loss accounting practices in the U.S. relative to the rest of the world is an unanswered question. To do this, we develop a stylized bank-loan setting …