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New CECL Excel SCALE Tool from Federal Reserve

Mary Ellen Biery
July 26, 2021
Read Time: 0 min

The Scaled CECL Allowance for Losses Estimator (SCALE) tool was unveiled

This tool is allowed only for banks under $1 billion as they transition to CECL. 

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"Starting Point"
CECL SCALE is an Excel spreadsheet-based tool.

The Federal Reserve recently introduced a new tool called SCALE for banks under $1 billion to try to help them reduce the cost of calculating the allowance for credit losses under the current expected credit loss (CECL) standard. 

The Scaled CECL Allowance for Losses Estimator (SCALE) tool was unveiled during an “Ask the Fed” webinar, where regulators described the Excel spreadsheet-based option using estimated loss rates from peers as a “starting point” in the calculation. Representatives from the Fed, the Conference of State Bank Supervisors, and the Financial Accounting Standards Board (FASB) stressed that SCALE is intended only for small banks (under $1 billion in assets) with less complex portfolios as they transition to CECL.   

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How it Works
Banks input peer data, then adjust.

During the webinar, 43% of the more than 2,300 attendees polled on the status of their CECL transition said they either hadn’t started yet or were in the discussion and planning phase. Only 25% had selected a methodology and were in testing, and 32% were collecting and analyzing data. 

 Using SCALE, the bank would calculate proxy expected lifetime loss rates by using rates reported in the latest period on Schedule RI-C of the Call Report from previous CECL adopters. Banks would select the peer data and input it into the spreadsheet for each portfolio segment. “Banks still have to apply qualitative adjustments to reflect their unique assets or the circumstance of each individual institution to make sure that their allowance accurately reflects the credit risk in their portfolio and their loss history,” said Sarah Chae, Deputy Chief Accountant, Federal Reserve Board of Governors, during the webinar. 

 “The tool is not a calculator that’s automatically going to spit out the allowance each quarter,” added Paul Oseland, lead examiner with the Federal Reserve Bank of Kansas City. “Peer rates may be a reasonable starting point. It’s up to management to make adjustments up or down.” 

Be Prepared
Timing issues to consider

Some of those adjustments might be related to differences in current conditions and conditions as of the reporting date of the peer data, which is already adjusted for reasonable and supportable forecasts, according to the Fed’s Frequently Asked Questions (FAQs) on SCALE: 

Are there timing issues that must be considered when using the SCALE method? Yes. The SCALE method relies on proxy expected lifetime loss rates (e.g., expected loss rates reported on Schedule RI-C of the Call Report). Since the proxy expected lifetime loss rates would typically be based on information from the previous reporting period, there would be a lag between the proxy data and the reporting date. Management is responsible for considering whether a qualitative adjustment is necessary to reflect any changes in economic and business conditions at the reporting date that affect the collectability of bank’s financial assets that were not present at the time the proxy expected lifetime loss rates were calculated. This is particularly important during periods in which the economic environment is rapidly changing. 

Regulators noted during the webinar that SCALE is neither an expected method nor a safe harbor. They also said this Excel-based CECL option doesn’t ensure compliance with U.S. GAAP. 

The rollout of the SCALE tool does not introduce any new regulatory guidance and does not change CECL requirements in any way,” said Lara Lylozian, Chief Accountant of the Federal Reserve Board of Governors. We are just providing a simple spreadsheet-based option that you can add to your menu of options to consider to help you take a step forward in implementing CECL in a meaningful way, because 2023 will be here before we know it.” 

Said Sarah Chae, Deputy Chief Accountant, Federal Reserve Board of Governors, “It is not a safe harbor method, as overall allowance process will continue to be a part of the examination review as it has always been in the past.”

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Regulatory Guidelines
Caution for acquisitive banks and for banks approaching $1 billion

Because the tool is prohibited for banks with more than $1 billion in assets, institutions contemplating an acquisition or approaching the $1 billion ceiling should “think about another method” besides the Excel-based CECL option, Oseland said.  

Regulators said they have had discussions with the FDIC and the OCC. However, they encouraged banks to work with their primary regulator to discuss the suitability of SCALE for their institution. NCUA officials were not included in the SCALE webinar. In addition, the SCALE approach relies on using historical credit-loss calculations from peers, but credit unions aren’t expected to comply with CECL until 2023. 

“The selected method should be appropriate for the financial assets being evaluated and consistent with the institution’s size and complexity, and any chosen method should be well-documented with a clear explanation of the supporting analyses and the rationales,” said Chae. 

Regulators said that in addition to documenting the reasoning for using SCALE, other aspects of the CECL calculation should also be thoroughly documented, from the pooled loan selection all the way through qualitative factors.  

About the Author

Mary Ellen Biery

Senior Strategist & Content Manager
Mary Ellen Biery is Senior Strategist & Content Manager at Abrigo, where she works with advisors and other experts to develop whitepapers, original research, and other resources that help financial institutions drive growth and manage risk. A former equities reporter for Dow Jones Newswires whose work has been published in

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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