What one bank views as the key decisions ahead of CECL
Financial institutions across the U.S. are grappling with the many changes that will be required as they implement the CECL standard. In fact, some are so overwhelmed that they succumb to "CECL paralysis," or a lack of action, Sageworks analysts have noted. In order to get moving, it can be helpful for financial institutions to understand how others have approached CECL implementation and what key decisions they have tackled early on in the CECL process.
Can a financial institution’s allowance be lower under CECL?
Will examiners challenge financial institutions if the current expected credit loss method (CECL) results in a lower lower allowance than under the incurred loss model? Banking agencies addressed this question during a recent webcast.
Discounted cash flow: Good to use for CECL?
Discounted Cash Flow (DCF) models, while not widely adopted as a means to account for the allowance for loan and lease losses (ALLL) under ASC 450-20 (current GAAP), have been accepted as best practice for adherence to other analogous accounting standard objectives.
Best Practices for Running and Validating a CECL Model
In the past, implementing a change like CECL would be a matter of mapping the right data and “turning on a switch.” This is no longer the case. The CECL timeline and transition process spans over several years and involves numerous functional departments at both banks and credit unions. This joint-webinar between Sageworks and Smarter Risk Management goes over how to build a CECL model and have it successfully validated.
FASB issues draft language on CECL extension
The Financial Accounting Standards Board released the draft of its proposed Accounting Standards Update to clarify the transition for non-public business entities (non PBEs) under the current expected credit loss model, or CECL.
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What one bank views as the key decisions ahead of CECL
Financial institutions across the U.S. are grappling with the many changes that will be required as they implement the CECL standard. In fact, some are so overwhelmed that they succumb to "CECL paralysis," or a lack of action, Sageworks analysts have noted. In order to get moving, it can be helpful for financial institutions to understand how others have approached CECL implementation and what key decisions they have tackled early on in the CECL process.
Can a financial institution’s allowance be lower under CECL?
Will examiners challenge financial institutions if the current expected credit loss method (CECL) results in a lower lower allowance than under the incurred loss model? Banking agencies addressed this question during a recent webcast.
Discounted cash flow: Good to use for CECL?
Discounted Cash Flow (DCF) models, while not widely adopted as a means to account for the allowance for loan and lease losses (ALLL) under ASC 450-20 (current GAAP), have been accepted as best practice for adherence to other analogous accounting standard objectives.
Best Practices for Running and Validating a CECL Model
In the past, implementing a change like CECL would be a matter of mapping the right data and “turning on a switch.” This is no longer the case. The CECL timeline and transition process spans over several years and involves numerous functional departments at both banks and credit unions. This joint-webinar between Sageworks and Smarter Risk Management goes over how to build a CECL model and have it successfully validated.
FASB issues draft language on CECL extension
The Financial Accounting Standards Board released the draft of its proposed Accounting Standards Update to clarify the transition for non-public business entities (non PBEs) under the current expected credit loss model, or CECL.
Poll
What type of data do you anticipate leveraging for your CECL calculation?
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CFO Corner -- “ALLL” about CECL
In this occasional feature, CFOs from financial institutions share their approaches to the ALLL and to the CECL transition, as well as advice for keeping the board informed about related matters. Here, Ronald S. Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer of The Washington Trust Company shares advice from his institution.
The biggest initial impact of CECL on financial institutions
Most financial institutions understand CECL, and more specifically applying the CECL model to their loan portfolio, represents the most significant accounting change for financial institutions in recent memory. However, there is less comfort over how the standard will specifically affect each institution.
Validating ALLL models under CECL – What might change?
What does model validation mean for the allowance for loan and lease losses and what will it mean under CECL?
Resources
Whitepaper: CECL and DFAST, Accounting versus Simulation
Learn about a case study referencing the symmetry and critical differences between the new current expected credit loss model for estimating credit losses (CECL) and the Dodd-Frank Wall Street Reform and Consumer Protection Act’s stress-testing (DFAST) requirements.
Although there is no guidance or statutory relationship between CECL and DFAST, their similarities in data requirements and forward-looking projection suggest benefits for financial institutions by coordinating the necessary data management and governance components of their CECL and DFAST initiatives.
Webinar: CECL for Community Banks, The Practical Path
In this webinar, Sageworks Executive Risk Management Consultant Tim McPeak discussed how as the transition to CECL moves closer, many smaller financial institutions have started to grapple with how to apply the new standard to their ALLL process in a practical way. He followed up on some of the questions and methods presented during the February regulatory webinar and focused on the key elements of the standard financial institutions need to consider as they plan their path forward. Specific topics included portfolio segmentation, available loss rate methods, qualitative factors, and forecasts.
Whitepaper: CECL Action Plans for Community Banks
Community banks are heeding the advice of the FASB, which have directed banks to take advanced
steps to ensure effective implementation of this major change in estimating losses. implementation efforts. This whitepaper outlines five practical steps that banks can take to prepare for CECL:
1. Coordinate with other departments
2. Understand loan level data collection requirements
3. Identify new procedures and changes to current procedures
4. Make a decision on building vs. buying a solution
5. Communicate with auditors and regulators
Whitepaper: CECL Vendor Due Diligence
Many banks and credit unions are considering how to best accomodate the transition to expected loss calculations for the allowance for loan and lease losses, and for some, the right path forward might include a third party solution or vendor. In this CECL due diligence guide, readers can identify what criteria should be used in building a vendor short list and used to compare offerings and support.