CECL: Shorter Runway?
Large Filers have spent the last five years preparing for CECL, and in Q1 2020, faced one of two realities: their original models required significant last-minute adjustments due to COVID-19, or banks delayed implementation due to concerns of model performance under deteriorating market conditions. Due to these unprecedented market events, your institution’s CECL Readiness plan should be revised to allow more time to develop and test a wide range of scenarios that will allow you to decide the best time to implement CECL between now and 2023. While it originally seemed that Small Reporting Companies (SRCs), private banks, and credit unions were given an extended runway for CECL adoption, the runway just got shortened. Some of the challenges institutions face during this implementation timeline include:
- Loan and loss data is often corrupt, missing, inaccurate, or simply doesn’t exist
- Volatility of economic metrics will increase, further complicating forecasting
- Skewed loan behavior due to stimulus will be difficult to account for and analyze
- TDR & COVID modifications will surface in abundance
- CECL methodologies will likely need regular tweaking
- Four quarters of parallel testing may no longer be adequate
- Capital preservation will be a priority
These are only a few of the challenges a bank will face throughout the implementation of CECL, which will require as much time as possible to resolve. With over 10,000 SRC’s, private banks, and credit unions across the country working through these issues, third-party assistance will become limited and more costly, whether through increased fees or unnecessary impacts to capital.
While personnel and resources may be restricted due to immediate COVID-19 related matters, Valuant has responded with a host of service offerings for CECL, Stress Testing, and other accounting-related matters. Valuant offers tailored delivery options to help you achieve a CECL reserve, including a quarterly outsourced service managed by our Client Services team, or as a hosted platform with ValuCast.
Let’s discuss your CECL needs.