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6 Considerations for the Best CECL Option for Your Financial Institution

July 27, 2018
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The CECL preparation business is booming. And like sharks to blood in the water, a new wave of CECL “experts” are moving in from all sides looking for easy prey. Lenders can be vulnerable to anyone with a financial credential who has studied the FASB guidance just enough to know more than they do.  

As well, the marketplace is flooded with CECL content, whitepapers and opinion pieces designed to make the person with the byline appear knowledgeable. But beware of the opportunists. There’s a lot more to adopting the CECL solution that is best for your institution than a latecomer could know. As the old adage goes, “They don’t know what they don’t know.” 

6 Considerations for the Best CECL Partner for Your Financial Institution

  • 1) There is no one-size-fits-all solution. Your solution needs to accommodate your institution: your loan practices and processes, your pools and portfolios.
  • 2) Do business with a firm with established allowance expertise. MST has been working with financial institutions on their allowances since well before CECL, even before the banking crisis that led to the development of CECL. We pioneered allowance automation in 2006, and have been customizing allowance solutions for institutions ever since, addressing nuances and issues that arise not only across the industry but specifically for each financial institution.
  • 3) Your CECL vendor should be able to demonstrate knowledge beyond a reading of the CECL guidance. MST has been involved with the evolution of CECL since the Financial Crisis Advisory Group first met in 2007 to study the causes of the crisis and determined the need for a forward-looking component in how financial institutions estimate their reserves. We counseled our bank and credit union clients on “convergence” as FASB and IASB sought to settle on a single international standard, then “divergence” as FASB decided to craft a U.S. standard. We participated in the ongoing discussion, from the release of the CECL Exposure Draft in 2012 throughout the evolution of the standard to the issuance of the CECL Guidance in June 2016.
  • 4) Work with a firm that has been proactive rather than reactive to CECL. Throughout CECL’s evolution, MST has worked on two levels with our clients, supporting them as they estimate the ALLL under current GAAP, and preparing them for CECL – helping them understand how CECL will impact their institutions, assemble their CECL implementation teams, develop a blueprint and pathway to CECL conversion, test methodologies with such tools as Shadow Loss Analysis, and decide on the methodologies that best suit their institution’s markets, goals and processes. Far from resting on our laurels, we have added – and continue to add – leading experts on the allowance to our advisory team. And we have expanded our engineering capacity and capabilities, updating our software with features and functionality our clients will need to comply with CECL.
  • 5) Choose a CECL partner with skin in the game. MST serves hundreds of U.S. financial institutions with allowance solutions. Our sole focus is the allowance, and the sole focus of our consulting division, MST Advisory Services, is guiding lenders through the process of determining the most efficient path to their most suitable CECL methodologies.
  • 6) Be assured of ongoing support. This could be the most important consideration of all in engaging third party CECL support. Even some of the nation’s largest accounting firms, now sticking their toes in the allowance waters, will have to decide whether or not their ongoing participation in a space that is not their core business is viable, whether supporting the ongoing demands of CECL suits their own corporate goals. History teaches us that when boom markets settle, the latecomers leave.

As the implementation dates for CECL approach, it is understandable that financial institutions struggling with conversion feel increasingly vulnerable. If you choose to engage third party support, be sure the help you engage can provide the depth and breadth of knowledge and experience that can help you achieve CECL compliance now and accommodate your institution and its goals well into the future.

About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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