Experts Share Top 5 CECL New Year’s Resolutions
CECL dominated the conversation in 2016. We debated it, fretted about it, then learned the details when it was finalized and announced. Now, as we begin 2017, it’s time to get your lending institution ready for it. As CECL will be one of the most important things you do in 2017, we thought you might want to make it the subject of your New Year’s resolution. And just in case you’re having trouble creating your own New Year’s CECL resolution, we asked some of the nation’s top CECL experts for suggestions:
Graham Dyer, Partner, Accounting Principles Consulting Group, Grant Thornton LLP
“I think the New Year’s resolution most lenders should make regarding CECL, besides accepting its inevitability and developing a plan, is to change the narrative inside your institution regarding CECL. Don’t look at it as purely a compliance exercise, the cost and impact of which should be minimized, but an opportunity to take a fresh look at how you consider credit losses in your day-to-day operations – everything from evaluating the effectiveness of credit loss mitigation activities, to underwriting policies, to debt covenant requirements, to how you compensate lenders. Every bank is going to have to comply with CECL and incur a significant implementation cost. Those that use that investment to enhance the performance of operations relative to credit losses could benefit for years to come.”
Dorsey L. Baskin, Jr., Consultant
“Just get started figuring out for each component of your current methodology: what can we keep, what can we modify, and what must we build or replace. From that a plan can be developed. But the longer you wait to start, the greater the time pressure will be to get it done.”
Bart Smith, Managing Director, Performance Trust Capital Partners, LLC
“Given expectations for an economic upswing and reduced regulatory burden, 2017 could bring enormous opportunities for financial institutions. That said, the new environment will not come without challenges and potential risks. As institutions look forward to the new year, it’s important that they consider all new opportunities with a strategic mindset. Balancing risk and reward, preparing early for new challenges (i.e. CECL), and tactically approaching new opportunities will help institutions to ensure their ongoing success.”
Francisca B Ventriglia, Senior Associate, Financial Risk Management, KPMG LLP
“Establish a CECL Steering Group. The impact of CECL will be felt across several process areas, including accounting, technical and business groups. As such, before an implementation plan is created, stakeholders across these various areas should be engaged early in the transition process to create a common understanding of the effort needed to meet the new standard and the ownership and dependencies of the work streams of the transition process.”
Rahul Gupta, Partner, National Professional Standards Group, Grant Thornton LLP
“The most important thing that financial institutions should be doing right now is coming up with an implementation plan and setting up a team, which includes assessing the need for an external party to help you through the implementation process. Remember the most important change relative to the standard is in the thought process as to how credit losses are measured. Currently a majority of the credit loss is measured using historical experience, but now the expectations about the future are also going to be equally important in estimating credit losses.”
Top 5 CECL Resolutions for 2017
1) Accept CECL’s inevitability.
2) Establish a CECL Steering Committee.
3) Assess current methodology in light of CECL guidance: what can be altered, what has to change.
4) Prepare an implementation plan for CECL.
5) Consider CECL with a strategic mindset.