It’s 2018, and it feels like the financial industry has been talking about the Financial Accounting Standards Board’s (FASB) Current Expected Credit Loss Standard (CECL) for years now, doesn’t it? Well, it has.
The CECL standard has been in the works for more than five years. FASB first proposed the accounting standards update, Financial Instruments—Credit Losses, on Dec. 20, 2012. The final CECL standard was released on June 16, 2016.
As a reminder, for public business entities that meet the definition of an SEC filer, the CECL standard will be effective for fiscal years beginning after December 15, 2019. For other public business entities, it will be effective for fiscal years beginning after December 15, 2020.
But just because CECL has been on the roadmap for years, and many experts believe CECL system testing should begin this year, doesn’t mean financial institutions are ready to implement the new framework anytime soon.
KPMG recently surveyed banks, insurers and specialty finance companies to assess their CECL readiness. According to the results, 64 percent of banks were still in the assessment phase and had not progressed toward implementation. Not to be outdone, a whopping 89 percent of respondents in the insurance sector said they were still in assessment.
So what’s causing the delay in CECL implementation? For many financial institutions, it seems to be the realization that CECL isn’t just a rule change, but a fundamental shift in the handling of loan loss reserves that requires banks to account for all expected losses over the life of each loan. This includes expanded data collection and retention obligations, in large part due to the requirement to begin estimating expected credit losses.
If your institution is having a hard time progressing along the path toward CECL readiness, CSI has some great resources that should serve as catalysts for your implementation efforts.
Don’t Hesitate to Automate
If you’re looking for a more efficient and infallible way to develop successful CECL methodologies based on the FASB guidance, we have partnered with Argus, a leading provider of intelligence, decision support solutions and advisory services to financial institutions worldwide, to offer access to their automated Loan Loss Modeling Suite. The solution offers banks a comprehensive tool for measuring, monitoring and managing reserves using the expected loss approach.
The solution includes support for multiple methodologies, seamless integration with economic forecasts and the ability to create side-by-side comparisons of your current model with a CECL-based model. It also accepts the import of multiple data files to create a central data repository, and CSI customer data is integrated into the solution.
Contact us to learn more about Argus’ CECL/ALLL solution.
Get On-Demand Help
When you have a moment, watch our on-demand webinar with Keith Monson, CSI’s chief risk officer, and Peter Cherpack of Ardmore Banking Advisors, Inc. During the webinar, they review CECL requirements and the changes you can expect when accounting for loan loss reserves, and share a step-by-step process to ensure your institution is ready.
The webinar also includes a quick demonstration of Argus’ solution, so you can get a glimpse at how to automate your current ALLL and run it in parallel with the CECL models.
Check Out the White Paper
For a detailed breakdown of the CECL standard, as well as a multi-year plan for successful (and affordable) implementation, download CECL by 2020-21: One Step at a Time. From assembling a CECL implementation team and creating a project plan, to gathering data and choosing the proper CECL methodology for your institution, our white paper gives you everything you need to be CECL ready.
The American Bankers Association called CECL “the biggest change ever to bank accounting,” and CSI wants to ensure your institution is fully prepared. In addition to the above resources, feel free to contact us if you need further CECL assistance.