Time – and CECL – Wait for No One
CECL implementation timelines have been altered since the release of this post. Find updated information here.
Use our industry experience to build your institution a CECL “backward timeline.”
From the very announcement of the CECL implementation dates, we have been working with lenders – and spilling a lot of ink – on timelines. When do you need to get started on your CECL transition to have enough time to be ready for your implementation date?
Being proactive is always the preferred course. But human nature and banking being what they are, life can get in the way. Delays happen. After all, you have a quarterly allowance calculation to worry about in addition to your other responsibilities. Having worked with so many institutions to develop their strategies and execute their CECL transition, we can say with confidence how long it will take and what hurdles an institution will have to overcome – whether you’re engaging third-party help or doing it all on your own.
Developing a strategy involves, on the front end, assessing your data and identifying data gaps. The regulators have repeatedly advised institutions to start with what they are doing today. So determine how much of your current allowance process you can leverage for CECL, then what adjustments you will have to make.
On average, developing and implementing a CECL strategy is a three-to-five month process. If you choose to move from an Excel model to automation, the industry average is 90 to 120 days from deciding on a vendor to getting up and running on a platform. Your timeline will depend on when you started on your CECL strategy and how focused your team can be, considering the ongoing obligations of your normal business operations. And you will want to reserve a minimum of four quarters to run parallel allowance estimates, if for no other reason, to learn the impact of your new CECL methodology on earnings and capital.
It’s easy to get bogged down and lose time. Identifying data gaps and how to fill those will take time. A review of your pooling structure can generate a lot of internal discussion over adding pools or doing more segmenting. Lenders testing multiple methodologies also lengthen their CECL timelines; narrowing your tests to viable models is key to avoiding delays.
So use our experience to determine your CECL timeline. Then you can work backward from your implementation date to find out where you should be along your way to CECL compliance.
About the Author
Natalie Crawford is a relationship manager with MST. She works with financial institutions to maximize the benefits of automating their allowance processes with the MST Loan Loss Analyzer. Her role includes educating clients and prospective clients on MST solutions as well as on regulatory issues such as FASB’s CECL guidance.