Preparing for The New Impairment Requirements: Practitioner’s View BY CHRISTIAN HENKEL AND EMIL LOPEZ Overview An appropriate allowance for loan and lease losses (“ALLL”) covers estimated credit losses inherent in an institution’s loan and lease portfolio. The ALLL represents management’s best estimate of likely net charge-offs that are to be realized for a loan or group of loans, given facts and circumstances as of the evaluation date.1 On April 27, 2016, the Financial Accounting Standards Board (FASB) voted to move forward with a new credit impairment model, known as the Current Expected Credit Loss model (CECL), for the recognition and measurement of credit losses for loans and debt securities. The final standard is to expected be released in June 2016 with implementation beginning in 2018. This new standard is far more than an exercise in financial accounting and bank regulation. It will replace the current incurred loss model with an expected loss model, one of the most significant changes in the history of bank accounting.
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