“Wait and See” Could Prove a Costly Strategy
Proactive lenders believe addressing CECL means developing and executing a plan of preparation. For most institutions that means accessing the expertise and tools they’ll need, first to transition to CECL, then to estimate their allowances under CECL.
In a poll of attendees at the MST 2016 National ALLL Conference– admittedly a more CECL-conscientious group if only by their attendance at a conference dedicated to issues related to CECL – 63 percent said they have begun CECL preparations. That leaves almost a third of even those institutions seeking education on CECL that hadn’t started preparing.
“It’s natural for businesses to wait to respond to change to see how their peers address the issues,” noted Tom Cunningham, retired senior economist of the Federal Reserve Bank of Atlanta and MST Advisor– Economics. “CECL is not optional. It is unavoidable for all institutions. There is a limited supply of external expertise available for both the process and the technology. As the implementation deadline approaches, demand for that expertise will increase, and we all know what happens when supply is limited and demand is surging. Establishing relations with the external support necessary for CECL early in the process will assure both availability and cost. Waiting until late in the process when other last-minute institutions are gobbling up resources and bidding up prices is not a sound business decision.
“The technical answer is that as a deadline approaches, demand becomes more price inelastic, so the increase in demand results in a larger proportionate increase in price than earlier. How much costs increase depends on the shift in elasticity and the shift in demand.”
Getting started, determining priorities and learning what information you will need and how you will get it is imperative. If you put it off, it’s going to be expensive, both securing the resources and support to make the transition as well as CECL’s impact on your earnings and capital.
For more detailed direction on preparing for CECL, including insights from CECL subject matter experts, click here to read our latest white paper, “Managing Fate.”
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About the Author
Shane Williams is a Senior Advisor in Modeling for MST Advisory. He counts more than 25 years of financial and risk management experience as a banker, in software development and delivery, and as a consultant to major financial institutions. To contact Shane email [email protected].