CECL vs. Incurred Loss: How the Pandemic Affected the Allowance
In 2020, most SEC-filing institutions were required to move to the new current expected credit loss, or CECL, model. Following the 2007-2008 financial crisis, the CECL model aimed to provide more timely adjustments of reserve levels than the existing incurred loss method. Unlike the incurred loss model, the CECL model is forward-looking, estimating loans’ lifetime... Read more »
CECL Updates for Directors: 3 Topics to Cover with The Board
CECL updates for directors are critical for financial institutions transitioning to the current expected credit loss (CECL) standard in 2023. After all, the board (or its designated committee) has oversight responsibility for the management and for activities related to the allowance for credit losses and provisions for credit losses. In addition, directors have oversight responsibilities for... Read more »
Motivating 2023 Filers to Jump into CECL
The deadline for 2023 filers to transition to the current expected credit loss (CECL) model is rapidly approaching. Since the release of the CECL standard from the Financial Accounting Standards Board (FASB) in 2016, financial institutions have navigated changing timelines, opacity in requirements and methodologies available to them, and challenges with building defensible forecasts. Those preparing for the 2023 deadline are... Read more »
Adopting CECL Accounting for 2023? 5 Myths about the Change
For financial institutions adopting the current expected credit loss, or CECL, accounting standard in 2023, the next 26 months will pass quickly. As these banks and credit unions work to identify and gather relevant loan-level data and select a methodology for calculating the allowance for credit losses, or ACL, they must also deal with coronavirus-related... Read more »
CECL Methodology Implications for 2020 and 2023 Adopters
For years, financial institutions across the country have been preparing for the implementation of the new current expected credit loss (CECL) accounting standard. A central driver of FASB’s action to CECL was criticism following the 2008 financial crisis that financial institutions had recorded losses too slowly and that past loss experience would be reflected in... Read more »
Bridging the Gap: How to Get Started with CECL with No Meaningful Losses
Data is undeniably the foundation for driving accurate current expected credit loss models. For financial institutions that must comply with CECL and lack meaningful losses or loan history, it can be overwhelming to determine where to start. While 2023 can seem distant, community financial institutions must assess and resolve data gap challenges now. “It takes... Read more »
CECL Tips for Financial Institutions Complying in 2023
With a little less than three years until private banks and credit unions must comply with the current expected credit loss (CECL) standard, making strides toward implementation may fall to the bottom of a 2020 priority list. As we move along in 2020, large SEC filers are already beginning to disclose the impact that CECL... Read more »
Large SEC Filers Begin Reporting CECL’s Impact
CECL’s impact on a financial institution is all about the portfolio makeup. That’s the main message from the first financial institutions to report officially on the effects of adopting the current expected credit loss model.
What SEC Filers Have Learned About CECL Implementation
All eyes will be on the large SEC registrants in January as they become the first financial institutions to adopt the current expected credit loss model, or CECL. Regulators, investors, and other stakeholders will be watching and listening for updates on the impacts of the accounting change.
Here’s a Rundown of the CECL Methodologies Available to Financial Institutions
An important step in CECL implementation is selecting what methodology or methodologies the institution will use for estimating credit losses. For a quick glance at the seven methodologies available, and to get a better sense of how they compare, check out a complimentary infographic, “CECL Methodologies: Pros and Cons for Your Loan Pools.”
FASB Hosting CECL Workshops as Implementation Moves Ahead
FASB is hosting CECL workshops around the U.S. in coming months, reinforcing its commitment to the upcoming current expected credit loss standard, or CECL.
The Benefits of Connecting CECL, ALM, and Stress Testing
Managing risk is at the very core of the business of banking and a fundamental differentiator between financial institutions. In other words, institutions that identify, measure, and manage risk most effectively will outperform their peers in terms of financial performance, while also maintaining safety and soundness. This is especially true during economic downturns as institutions... Read more »
Insights from FASB’s Recent Q&A on CECL
On July 17th, 2019, the Financial Accounting Standards Board (FASB) agreed to formally propose extending the effective date of the Current Expected Credit Loss (CECL) standard to January 2023, for all but the larger SEC filers. This highly anticipated announcement of additional relief for most understandably overshadowed another document the FASB also issued that same... Read more »
FASB ASU Extensions Now Open for Comments
The Financial Accounting Standards Board (FASB) on Thursday, August 15th has issued a proposed Accounting Standards Update (ASU) that provides at least 2 years of relief to small public banks, privately held banks, and credit unions for varying accounting standards. This update covers the standards on current expected credit losses (CECL), leases, and hedging. Also... Read more »
Responsible for the ALLL and CECL? Make the Most of ThinkBIG 2019
For financial institution staff with responsibilities related to CECL and the ALLL, or for those who want to know more about how CECL will impact the institution, 2019 ThinkBIG is the one conference this year to attend. And once you’re registered, it’s important to have a strategy for getting the most from the conference.
Do This, Not That: Explaining CECL to Your Board
Explaining CECL and your institution’s transition progress to your board of directors is important. In a recent webinar, Abrigo experts outlined several suggestions for explaining the complexities of CECL to the board. Here are some of their tips.
Will Financial Institutions’ CECL Data Be Sufficient?
Are financial institutions making enough progress in their CECL data collection efforts? How much data are they gathering for CECL, and will it be enough to support their calculations? Only 43 percent of institutions surveyed in the 2019 Abrigo Lender Survey expressed confidence that the data they have will be sufficient for CECL.
FASB Rejects Regional Bank Proposal, Reverses Course on Vintage Disclosures
The Financial Accounting Standards Board (FASB) made two decisions that will limit changes to the CECL standard ahead of implementation.
CECL: Survey Results Show What Institutions Are Doing Now
How prepared are financial institutions when it comes to the current expected credit loss, or CECL? Find out Tuesday during a webinar hosted by the American Bankers Association, when Abrigo will discuss the findings of its 2019 CECL Survey.
JPMorgan Chase Gives Look at CECL Impact
JPMorgan Chase’s investor presentation last week gave one of the first looks, if not the first, at how a new set of accounting rules for reporting losses on loans will impact the reserves set aside to cover them at a major U.S. bank. JPMorgan Chase CFO Marianne Lake said the financial institution expects to have... Read more »
Where Are Banking Peers in CECL Implementation? Find Out
If you’ve wondered how far along your financial institution peers are in their CECL implementation plan, now’s the time to find out. By filling out a survey sponsored by Abrigo, the leading technology provider of compliance, credit risk, and lending solutions for community financial institutions, you can learn about the banking industry’s progress, preparation, and... Read more »
The top CECL changes to ALLL disclosures
The current expected credit loss (CECL) model requires financial institutions to overhaul many aspects of their accounting for the allowance for loan and lease losses (ALLL), including disclosures. Here are five top CECL modifications expected for ALLL disclosures.
Becoming CECL compliant with an ALLL workflow system
While seeking to adapt in an ever-changing regulatory environment, bankers must adhere to heightened data requirements, new calculation procedures, and auditor/examiner scrutiny. Specifically, financial institutions have to complete numerous steps when calculating their allowance for loan and lease losses (ALLL). This can often be time-consuming, especially when multiple individuals are involved in calculating the allowance, and as the calculation extends to a life-of-loan model, the calculation will become increasingly inter-departmental.
Could CECL changes be coming?
The spotlight is shining brightly this month on potential changes to the current expected credit loss (CECL) model, even though the implementation deadline clock is ticking.
What if your CECL results aren’t what you expected?
Financial institutions across the country are now actively preparing for the ALLL transition from the incurred loss to expected loss models. By now, most banks and credit unions are well aware of the methodology options under CECL. However, many are still having challenges interpreting results from their modeling exercises.
FASB seeks comments on proposed CECL updates on accrued interest, recoveries, prepayments
Financial institutions and other parties interested in the current expected credit loss model, or CECL, have until Dec. 19 to comment on FASB's proposals to update its guidance for accounting for credit losses.
FASB meeting: New disclosure requirements related to gross write-offs and recoveries
The Financial Accounting Standards Board (FASB) met today to discuss the current expected credit loss (CECL) accounting standard and expand on implementation issues brought up in the transition resource group meeting in June. The purpose of the transition resource group is to discuss stakeholders’ issues about CECL, to inform the board of the issues, and to provide a forum for stakeholders to learn about implementation experiences of others.
CECL survey: Most bankers to use 3rd-party vendors, advisors for CECL
A majority of bankers expect their financial institutions to use third-party vendors or a combination of advisors and third-party vendors to help implement the current expected credit loss model, or CECL, according to an informal poll released by Abrigo and MST.
Large banks push for a CECL extension
The Bank Policy Institute (BPI), an organization conducting research and advocacy on behalf of America's leading banks, recently wrote a letter to the chairman of the Financial Stability Oversight Council (FSOC), Stevin Mnuchin, with a request to review the risks associated with the implementation of the new current expected credit loss (CECL) model.
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, Abrigo 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 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.
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.
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.
Credit unions vs. community banks: What are the different CECL challenges?
Community banks and credit unions face different challenges when preparing for the new current expected credit loss model (CECL). Often, credit unions are grouped together with community banks, although their experience will look different when building out their models. What loss rate methodologies are applicable to community banks but not credit unions? What challenges do credit unions face that are unique to their own loss history, portfolio structure and loan count?
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? Ever since the 2011 Interagency Guidance (2011-13) was issued and began to be applied to ALLL model, model validation has been going through a maturing process. Every model is different, and there have been some... Read more »
Preparing for CECL questions during upcoming bank exams
Bankers preparing for the Financial Accounting Standards Board’s (FASB) new current expected credit loss model, or CECL, have many questions about implementation, including what to expect in the way of CECL scrutiny during 2018 visits from banking examiners. They got a glimpse of an answer this week when federal banking agencies discussed the topic during a webinar for community bankers about the new credit loss accounting standard.
The two main hidden complexities of CECL
CECL's details have been out for two years, but banks and credit unions may encounter complexities when theory collides with the reality of implementation.
New stress testing reform may have some CECL benefits
Banks with assets between $10 billion and $250 billion will no longer be subject to mandated annual stress testing, whether it be for the Dodd-Frank Act Stress Test (DFAST) or the Comprehensive Capital Analysis and Review (CCAR), due to the passage of a new regulatory relief bill.
Discover These CECL Training Resources for Banks and Credit Unions
With implementation of the current expected credit loss model, or CECL, quickly approaching, banks and credit unions can benefit from resources and CECL training to help make the transition in their allowance for loan and lease loss calculations.
current expected credit losses
5 Benefits of leaving behind an Excel-based ALLL model ahead of CECL: One bank’s story
Each institution must consider its own size and complexity in determining the most appropriate approach to CECL. However, one community bank that decided to shift from an Excel-based model to an automated approach ahead of CECL has identified several benefits from its decision.
CECL segmentation of the loan portfolio
The transition to the current expected credit loss model, or CECL, provides an opportunity to revisit loan portfolio segmentation. In the end, whether financial institutions make wholesale changes or instead determine that their current segmentation is optimal for CECL, institutions will need to document how they arrived at their decisions. Here are some tips for CECL segmentation.
Poll: How 254 financial institutions are approaching Q factors under CECL
During a recent webinar, Abrigo Senior Consultant Tim McPeak and Danny Sharman, an implementation consultant, shared tips to help institutions get prepared for the CECL transition. During the presentation, they also discussed current practices regarding the use of qualitative factors, or Q factors, in the allowance and how to prepare for using Q factors under CECL. A poll of 254 webinar attendees showed that Q factors are a common area of questioning by auditors and examiners.
CECL for community banks: A recap of regulators’ webinar
The FDIC and the Federal Reserve Board (FRB), in conjunction with the Financial Accounting Standards Board (FASB), the U.S. Securities and Exchange Commission (SEC), and the Conference of State Bank Supervisors (CSBS), recently hosted a webinar to discuss how smaller, less complex financial institutions can implement CECL. The purpose of the webinar was to help small financial institutions go from theory to application as they prepare for CECL and to dispel myths often associated with FASB’s new standard.
CSBS offers CECL readiness tool
The Conference of State Bank Supervisors (CSBS) released a readiness tool for Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326). The tool is a downloadable resource that institutions can use to their expected loss implementation planning.
CECL Transition Workshops to Kick Off in March
As part of a three-pronged approach to help Abrigo’ clients transition to the excepted loss accounting standard, Abrigo will kick off in March 2018 a series of CECL Transition Workshops to take place across the country. These events will be open to all financial institutions, not just those who subscribe to the company’s ALLL solution.
Upcoming Webinar: How a Real Bank is Tackling CECL
On January 30, 2018, Abrigo will host a webinar that answers the question many financial institution leaders are asking: what should a real-life bank with real-life data be doing for the current expected credit loss (CECL) model?
CECL: A CEO’s role in improved management of credit losses
There is a reason regulatory agencies are directing their guidance on the new current expected credit loss (CECL) model to the attention of financial institution CEOs. After all, it is top management’s responsibility at the end of the day to ensure the allowance for loan and lease losses (ALLL) is adequate.
The Case for Early Adoption of the FASB’s Current Expected Credit Loss (CECL) Model
The standard, issued in ASU 326 (Financial Instruments – Credit Losses) in June of 2016, contains several timelines for required adoption of the standard depending on the type and existing reporting requirements of the financial institution. While the timelines are (directly) independent of institutional size and complexity, all financial institutions do have one thing in common: For fiscal periods beginning after December 15, 2018, and for interim periods within those years, use of the CECL standard is permitted.
CECL is here – Answering your common questions
For financial services companies, June 2016 was a major milestone with the FASB’s issuance of the new accounting standard for loan losses and held-to-maturity debt securities. Designated the current expected credit loss model (CECL), the standard requires entities to record credit losses at origination based on a life of loan loss concept. This is an extensive, impactful change in accounting guidance, which brings significant questions regarding interpretations, implementation and challenges financial services professionals and others are facing.
Don’t panic about upcoming accounting change
Bankers shouldn't panic about the upcoming CECL standard. What financial institutions can do now is take measured steps to examine their current calculation processes and to communicate with their boards so that institutional panic doesn’t snowball.