Prepare for CECL: Advice for smaller financial institutions
Jan 6, 2016
The clock is ticking on the Financial Accounting Standards Board’s (FASB) plans to issue a final standard for its proposed current expected credit loss model, or CECL. With a release of the final rule expected during the first quarter, financial institutions are anxious to determine how this fundamental shift in accounting for credit losses will eventually impact their allowance for loan and lease losses (ALLL) and ultimately, their strategic and capital planning. Many are also looking for opportunities to prepare for potential changes in their processes and allowances.
Tim McPeak, an executive risk-management consultant at Abrigo, recently penned a column on preparing for CECL for Perspectives, the Financial Managers Society’s (FMS) online publication regarding current issues of interest to financial professionals. McPeak specifically addressed efforts community institutions can make in the coming months to prepare for CECL. As he noted, this category of financial institutions may have longer to implement the FASB’s new model, but they may need that extra time because their “resources dedicated to IT and data management are more often stretched thin, compared to larger institutions.”
Recently, the FASB voted to set the effective dates for CECL, saying public businesses that meet the definition of an SEC filer will be required to apply the guidance for their fiscal years beginning after Dec. 15, 2018. Other public businesses and private companies will be required to apply the guidance for fiscal years beginning after Dec. 15, 2019.
McPeak advises smaller institutions to monitor developments related to the CECL model as information becomes available from FASB and industry leaders. For example, the FASB recently announced it will hold a roundtable discussion on CECL, with a focus on community banks, and the Federal Reserve has held conference calls with industry participants to discuss its views on the changes. And Abrigo hosts webinars and provides complimentary whitepapers on preparing for CECL through its resources site, ALLL.com, where it also facilitates peer discussions on the ALLL.
McPeak also recommends comparing notes with peers and focusing on improving data gathering. “What is most important today for preparation is that institutions take a close look at what loan-level data they are able to archive for future use,” he wrote in the column.
For more information on McPeak’s recommendations to smaller institutions preparing for CECL, read the entire column on the Financial Managers Society’s website.