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Real effects of lagged guidance from prudential regulators on CECL

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  • Basu, Riddha
  • Roychowdhury, Sugata
  • Sinha, Kirti

Abstract

We examine the impact of lagged guidance from prudential regulators on new accounting standards in the context of the Current Expected Credit Loss (CECL) standard. We refer to the period following CECL's 2016 pronouncement but prior to the 2018 guidance from prudential banking regulators on the standard as the lagged guidance (LG) period. We find that during the LG period, banks reduce loan amounts and increase loan spreads for affected loans (Term Loan As, or TLAs) relative to unaffected loans (Term Loan Bs, or TLBs). Following the 2018 regulatory guidelines, however, banks increase loan amounts and reduce loan spreads on TLAs relative to TLBs. The stricter TLA terms during the LG period coincide with decreased investments by corporate borrowers dependent exclusively on TLAs, especially those that borrow frequently and are financially constrained. The results indicate that delayed guidance from industry regulators on CECL had spillover effects in the economy.

Suggested Citation

  • Basu, Riddha & Roychowdhury, Sugata & Sinha, Kirti, 2025. "Real effects of lagged guidance from prudential regulators on CECL," Journal of Accounting and Economics, Elsevier, vol. 80(2).
    • Handle: RePEc:eee:jaecon:v:80:y:2025:i:2:s0165410125000448
    DOI: 10.1016/j.jacceco.2025.101808
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    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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