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Moody's: CECL unlikely to change assessment of banks' credit strength

Moody's said the current expected credit loss standard is unlikely to change its assessment of a bank's credit strength.

According to Moody's analysis of banks' preliminary estimates in third-quarter 2019 SEC filings, CECL will have a "limited impact" on the loan loss reserves of most large listed banks in the U.S.

"CECL adoption will cause most banks to increase loan loss reserves and reduce capital slightly, but their overall loss-absorption capacity will be essentially unchanged under our solvency analysis, which considers both capital and reserves as loan-loss mitigants," according to the rating agency. "Therefore, the accounting change by itself is unlikely to change our assessment of banks' standalone credit strength."

CECL's negative aspects include increased earnings volatility and decreased peer comparability, which could cause investor uncertainty and raise funding costs.

DBRS Morningstar has said that implementing the current expected credit loss standard is unlikely to affect U.S. bank credit ratings.