Introduced by the Financial Accounting Standards Board (FASB) in June 2016, the Current Expected Credit Loss (CECL) model changes 40 years of standards related to accounting for credit risk changes. The impact will vary, but every financial institution is required to comply with the standards.
CECL Implementation Starts Now. Don’t Delay.
While the effective date for the updated CECL guidance begins in 2020 for SEC registrants, now is the time to consider your new credit loss estimation model. The benefit to CECL is the data-driven insight it will produce as you gather, store, model and engage detailed information about your loan portfolio.
CECL implementation requires a host of resources and the time to develop, test, troubleshoot and confirm your methodologies. Deciding which resources you engage should be based on how your bank currently captures credit risk and calculates increased allowance for loan and lease losses (ALLL).
Better Information Builds Better Loan Portfolios
Meeting the basic requirements of CECL will keep you compliant with GAAP, but the information gathered by the system you implement can provide your bank with a wealth of data that will improve the quality of loan decisions and make regulatory compliance easier. For consumer loans, the data can help to eliminate unconscious bias and more effectively demonstrate compliance with fair lending laws. On the business side, you can track many more variables related to loan applications and better predict loan performance. The additional data available for both will contribute to more accurate pricing and more efficient operations.
ROI of Resources, Models and Metrics
HORNE offers a consulting-led approach to implementing models and software, taking into account critical variables to build an intelligent CECL roadmap.
Our phased implementation approach helps you to confirm critical resources, models and metrics at every step. As part of the process, we will help evaluate the models and software that create the highest value for your portfolio and your bank. Even if you modify existing systems and methods to comply with the new requirements, you will still need to clarify your loan portfolio and credit quality indicators, select appropriate CECL model(s) for each loan pool, and evaluate your software and CECL models for sufficiency. HORNE has the resources to get you up to speed with the new requirements quickly and efficiently.
CECL Represents Opportunity
Once solutions are in place, HORNE will ensure your bank can respond to regulators’ questions with confidence. We also can help to ensure the customer, lending product and credit quality data will continue to improve your ability to support the performance of your loan portfolio and mitigate risk.
The quality of your CECL implementation will affect your financial statements and business decisions for years to come. Rely on HORNE to gain the resources and knowledge you need to manage these complex guidelines toward lasting value.
Take CECL from compliance challenge to opportunity. Wherever you are in the process, HORNE will take you forward.