Relating Fair Value and CECL: Misconceptions, Challenges, and Solutions
In just a matter of months, the coronavirus pandemic has had an unprecedented impact on the economy, upending financial institutions’ 2020 goals and business strategies. Now, banks and credit unions across the country must be nimble, making the necessary adjustments to meet the needs of the institution and its customers and members amid the pandemic.... Read more »
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 »
3 Things to Know About Q Factors Under CECL
‘What will happen to Q factors?’ Want to know how to develop qualitative factors, or Q factors, under CECL, the current expected credit loss standard? You’re not alone. Q factors – more specifically, “What’ll happen to my Q factors under CECL?” is a popular topic among bankers, especially those with a 2023 CECL implementation date, according... 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 »
The Coronavirus, ALLL, and Liquidity: Assessments and Expectations
In January 2020, most SEC-filing financial institutions began operating under the new current expected credit loss (CECL) accounting standard. While loss provisions were expected to increase due to the new standard, the onset of the economic impact of the coronavirus pandemic also created new implications for financial institutions’ reserves. Reports from the first quarter revealed... 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 »
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.
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.
CECL Lessons Learned
By: Chris Emery Director, Strategy, and Engagement Abrigo At Abrigo, many of us eat, sleep and breathe CECL. Since the very inception of the concept of an expected loss standard back in 2012, Abrigo professionals have been paying close attention to the Financial Accounting Standards Board (FASB). The new accounting standard changed quite a bit... Read more »
CECL’S Impact on Your ALM Modeling
With CECL's need for financial institutions to look at a more forecasted approach to determine credit reserves, it makes sense to leverage some of the assumptions used in the past for developing loan assumptions in Asset/Liability models.
FASB Approves CECL Fair Value Option Change
Easing the transition to the current expected credit loss standard, or CECL, was the goal of a measure approved by the Financial Accounting Standards Board that provides entities the option to measure certain types of assets at fair value.
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 »
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.
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.
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?
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.
Streamlining the new fair value disclosure requirement
A new Financial Accounting Standards Board (FASB) disclosure requirement makes several material changes to U.S. generally accepted accounting principles (GAAP). New requirements for determining the fair value disclosure of financial institutions’ loan portfolios are among the revisions.
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 within DFAST: What you should know
An upcoming whitepaper and webinar by Garver Moore, Managing Director of Abrigo Advisory Services, will explore differences between the CECL and DFAST exercises; this blog post excerpts a discussion on CECL within DFAST. The discussion thoroughly addresses stress testing projections, adoption dates, and CECL modeling.
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.
CECL Software Considerations
Although many institutions have already discovered the value of a dedicated software platform to accomplish their current ALLL processes, nearly all institutions would agree that modernizing their approach has material benefits. The following recommendations are not intended to replace regulatory guidance as it relates to vendor management. Rather, the intent is to provide an understanding of a CECL-ready solution and the critical elements that such a solution should contain for tactical due diligence.
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?
discounted cash flow
What is the discounted cash flow (DCF) methodology?
A discounted cash flow methodology in the context of ASU 2016-13 (Topic 326/CECL) is one way to estimate credit losses. Discounted cash flow (DCF) methodologies utilize a bottom-up approach—meaning they model expected cash flows on a loan-level basis and aggregates results at the pool-level.
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.
Regulators offer new round of answers to FAQs about CECL
In a new round of answers to Frequently Asked Questions, or FAQs, regulators addressed initial supervisory views on qualitative factors, data needs and other topics related to (ASU) No. 2016-13, Topic 326, Financial Instruments – Credit Losses, which takes effect as early as 2020 for SEC-registered financial institutions.
CECL – Data and Methodology
The Financial Accounting Standards Board's (FASB) Accounting Standards Update (ASU) 326 provides the guidance for estimating allowances for credit losses, as the current expected credit losses methodology (CECL) will be applied. The allowance will be reported as a valuation account, or the difference between the financial assets’ amortized cost basis and the net amount expected to be collected. Two common questions that bankers ask about FASB's CECL model are: 1) What methodologies make the most sense for CECL? 2) What are the data requirements for my institution?
discounted cash flow
How applicable will DCF estimation be to your institution?
Being educated on and prepared for CECL is not complete without an understanding of DCF and it's applications. A DCF method affords institutions flexibility in their approach, is more prospective in nature, has cross utilization purposes that can inform pricing and valuation within the same model and is applicable to institutions with limited historical data.
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.
Other Regulatory Considerations for CECL Preparation
On December 19, 2016, the Board of Governors of the Federal Reserve System (the Fed), Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corp. (FDIC), and National Credit Union Administration (NCUA) issued an 18-page, 23-question statement titled, “Frequently Asked Questions (FAQs) on the New Accounting Standard on Financial Instruments – Credit Losses,”
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.
Making sense of CECL
In a July 2016 webinar with more than 220 bankers attending, executives at banks and credit unions spoke up with some of their most pressing questions related to the implementation of the current expected credit loss (CECL) model. Neekis Hammond CPA and senior risk management consultant at Abrigo addressed some of the questions during the webinar and archived the responses below for the ALLL.com audience.
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.
FASB’s CECL Model: Navigating the changes
Final deliberations by the FASB on the impairment of financial instruments are drawing to a close, and the board is expected to issue a final standard in 2015. Prior to deciding to issue a final standard, the board will ask themselves whether re-exposure is warranted. While the deliberations are not yet complete, the CECL model removes the “probable” threshold that exists today and requires the development of an estimate of all contractual cash flows not expected to be collected. Given the pervasive impact, many financial institutions are beginning to think about the impact the new model is likely to have on their allowance methodologies.
Financial instruments: Credit impairment
Since the financial crisis, the FASB has been debating wholesale changes to the U.S. GAAP credit impairment model. The FASB completed the majority of its deliberations in April and expects to issue a final standard in the fourth quarter of 2015. This standard, which uses the CECL model, fundamentally will change the way the allowance for credit losses is calculated. The standard will have a pervasive impact on all financial institutions, and questions are circulating about what changes are in store.
What credit unions need to know about CECL
Over the course of the next several years, any number of aspects of the financial industry can change. Information security could become tighter to better protect a financial institution’s sensitive data, or restrictions could relax allowing more credit union members access to lines of credit for mortgages or auto loans. One critical change in the landscape, though, isn’t member-facing – transitioning from the incurred loss model to the expected credit loss model in a credit union’s allowance for loan and lease losses (ALLL).
Life of loan
Life of Loan Concept
The more forward-looking CECL model will require institutions to adopt a methodology that takes into account the lifetime of the loan. This will require institutions to gather significantly more data components in order to perform the calculation.
An Update on CECL
Final guidance on the Current Expected Credit Loss (CECL) model has been an anticipated event in the eyes of bankers and other financial professionals. Its release marks the end of the incurred loss model in accounting for expected losses and brings with it a slew of process changes in the way financial institutions collect data and perform their ALLL calculations.
CECL effective dates vary among financial institutions. This post shows a timeline for implementing CECL, including selecting methodologies and validating models, depending on the institution's effective date.
The FASB issued the final CECL standard on June 16, 2016.
Thomas Curry, Comptroller of the Currency, has been on the record stating that banks should expect a 30%-50% increase in their allowance levels upon implementation of the CECL model. This will be a one-time adjustment to capital, not a provision expense.
With the transition to the CECL model, institutions will likely need to rely on archived loan-level detail. This could include individual loan segmentation, individual charge-offs and recoveries, risk ratings by individual loan, loan balances and duration.