The Federal Reserve unveiled its Expected Loss Estimator, or ELE, tool – a second spreadsheet-based tool aimed at helping smaller financial institutions implement the current expected credit loss (CECL) standard. And while regulators said some institutions would find the ELE tool useful for CECL, they acknowledged it did not represent a preferred method of regulators or a “safe harbor” method for GAAP compliance. They said it would not change examiner reviews of CECL allowance components.
Banks and credit unions facing a 2023 deadline for implementing CECL are within six months of the adoption requirement, Fed Governor Michelle Bowman said on a webinar with bankers unveiling the new expected loss estimator. Pronounced “Ellie,” the ELE tool for CECL is aimed at reducing the operational burden on smaller financial institutions and will support implementation, she added.
“This new tool is an automation of an existing CECL methodology, the weighted average remaining maturity, or WARM methodology,” Bowman said.
Regulators during the webinar described several characteristics of the ELE tool that financial institutions will find helpful in understanding it as they decide whether to implement CECL on their own, automate the allowance using CECL software, or outsource CECL implementation entirely.