For Everyone Not Planning to Retire in the Next Couple of Years . . .
“I’m not going to worry about CECL; I’ll be retired by then.” It is most often said in jest, but then the best jokes are the ones that ring true – and this one’s been ringing since the release of the first CECL draft in 2012.
If you are planning to retire this year, then you can probably ignore CECL. But everyone else is going to be knee deep in CECL – preparing, planning, and eventually, implementing.
The soon-to-retire have it right from one perspective. CECL is going to be a big challenge (translates “pain”) for everyone. Your auditors have told you. Your regulators agree. The first major ALLL accounting change since the introduction of FAS 5 and FAS 114 more than four decades ago is also the most impactful banking regulation since Dodd-Frank. It’s going to affect your institution enterprise wide. For credit departments, deciding on and implementing a CECL-compliant allowance methodology by the required implementation date is going to take a long time and a lot of work.
Even in its simplest form, even for the smallest of institutions, CECL is a huge change. There are still some holding out hope that FASB will come out with some form of CECL Lite for smaller institutions, but despite a few changes in phrasing to placate the complainants, FASB has held and is holding firm: the guidance is set; it might as well be carved in stone.
Rational people recognize the inevitability of CECL and have at least started taking stock of their data. It has become somewhat clichéd, but preparing for CECL starts with gathering and analyzing loan data – and it’s not just about how much data you have but how available it is, and most importantly, how good it is. Banks wiping the dust off their historical data are not only finding they need more loan-level data but that the data they have are faulted – they don’t match up with balance sheets; there are inconsistencies in the inputs from period to period, and so on.
Your accountants, regulators and trade organizations are also saying that financial institutions will likely benefit with help from an outside firm to get prepared. As the pioneer of ALLL automation, we’re squarely focused on the ALLL and helping financial institutions get ready for CECL. It is, in fact, our sole focus, our only business. So put aside that retirement planning guide and settle in for the transition. It’s going to be hard work, but it’s got to be done. And when you need help along the way, call us.
Looking for steps developing a CECL-compliant model? Download our Seven Steps whitepaper.