CECL Nears, Priorities Are Changing
As CECL is implemented, the allowance for loan and lease losses, or ALLL, is being called the allowance for credit losses, or ACL.
As CECL nears, institutions must re-think their preparation processes.
Time marches on. And CECL lies in wait. And as the former grows shorter and the latter nearer, priorities are changing for the financial institutions that will be required to adhere to the new allowance accounting standard.
Time is now officially an issue for SEC filers who will convert from using manual spreadsheets to an automated system for estimating their allowance. Most bankers agree they will need some type of automated system to manage their CECL process. The amount of data they will need to estimate life-of-loan losses alone will require a technological solution for virtually all but the smallest of institutions. Until recently, we have been responding to those institutions by building out a system for their current incurred loss calculations so that as they go through their CECL preparations, testing one or more CECL methodologies, they are able to more easily compare results with the automated system managing the data for both.
But the fact is there just isn’t sufficient time now for institutions to conduct their due diligence, select a system and implement it for their incurred loss estimates. We are now advising bankers who have been using Excel to continue to do so for their incurred loss calculations as they have a system built out to accommodate their particular loan portfolio and processes, including the methodologies they will use for estimating their expected loss allowance.
SEC filers that begin their due diligence process for selecting a CECL technology solution now will then be able to run parallel allowance analyses through 2019, four quarters being the minimum amount of time recommended to adequately test chosen methodologies, to determine how CECL will affect the institution’s operations as well as its allowance, and to make adjustments, including the required adjustments to their capital planning given the likely substantial impact of CECL.