The ALLL today – data challenges

With the recent release of the Financial Accounting
Standards Board’s (FASB) guidance on the CECL model, banking professionals and
consultants have been theorizing about the impact the standard will have on
current bank processes. While it is important for these banking professionals
to be prepared, consultants are stressing the importance of tackling today’s
allowance challenges too.

One of the challenges impacting financial institutions under
current GAAP is Data Management. While data gathering and management are
critical steps in the preparation process for CECL, it is important to gather
and manage accurate data when calculating the allowance today.

“Data quality is not just a concern for CECL, issues are prevalent
today; specifically, methodology options may be constrained by the data that is
available, but there seems to be a lack of accurate loan-level data for
decision makers,” said Sageworks Director of Consulting Aaron Lenhart.

Common Data Challenges:

• ·        
  Disparate loan systems/loan servicers
• ·        
  Inconsistent loan coding through time – “pool
  jumpers”
• ·        
  Handling of renewals and modified loans
• ·        
  Lack of accurate historical loan-level data

Data Solutions:

• ·        
  Data warehouse set-up to synthesize multiple
  loan systems and servicers:

o  
Consistent source for internal/external
reporting

o  
Long-term storage of loan-level history

• ·        
  At a minimum, create and store loan-level
  extracts of month-end snapshots:

o  
Usable formats (not PDF!)

o  
Many core accounting systems store only 12-13
months

Yes, this is a CECL issue as well. Consider the different
methodologies you may employ for CECL as your institutions goal should be to
avoid a “lack of data” being a roadblock.

If you would like more information about the challenges impacting the ALLL today, watch Understanding the ALLL Today before CECL.