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CECL is a hot topic at Sageworks Risk Management Summit

Mary Ellen Biery
Posted by Mary Ellen Biery
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**The FASB issued the final CECL standard on June 16, 2016. For up-to-date information and resources, access the updated CECL Prep Kit.

The Financial Accounting Standard Board’s proposed move to the current expected credit loss, or CECL, is top of mind for many of the bankers and industry experts attending the 2015 Risk Management Summit presented by Sageworks.

Presentations at the conference, which kicked off Wednesday in Chicago and runs through Friday, have focused on how financial institutions will be impacted by the transition from the existing incurred-loss model, as well as what banks and credit unions can do now to better prepare for CECL’s eventual implementation. 

FASB proposed the move from its existing credit impairment accounting standards to the expected loss model in December 2012, and after years of debate and discussion, a final version of the guidance is expected by year end. Some meeting participants, however, expressed skepticism that this timing would hold true. 

“Some of the FASB board members have made public remarks that the timing of CECL may be in more doubt than previously thought,” said Graham Dyer, senior manager of the National Professional Standards Group at Grant Thornton

There is at least some risk that FASB will make that December release date, he told about 200 bank and credit union executives, credit risk professionals and top banking consultants attending the event.

During peer group roundtable meetings and networking events at the conference, several participants expressed frustration about all of the uncertainty surrounding CECL – uncertainty not only about when institutions will be required to implement the new model, but also how they will be asked to make the transition. 

Dyer and other speakers said one of the best way financial institutions can begin preparing for CECL is to collect loan-level data to provide more granular detail on historical losses so that they will be better able to develop reasonable and supportable forecasts of expected losses. Involving people from the financial institution’s credit department will be key, he added.

“Getting the data is probably the number one thing,” Dyer said during a panel discussion Thursday, noting many banks don’t currently have lifetime loss data on their entire portfolios.

Todd Sprang, principal in CliftonLarsonAllen’s financial institutions group, said data considerations are one reason he is hoping CECL will have a lengthy implementation period. In the meantime, though, he said institutions should be gathering data now. “I’m still hopeful for a five-year implementation period so that if you started gathering data on current losses and tracked information on those, it would give you five or six years of data,” he said.

Other presenters during the conference are covering stress testing best practices, dealing with troubled debt restructurings and using qualitative factors to adjust the allowance for loan and lease losses, or ALLL. 

Sageworks Chairman and Co-Founder Brian Hamilton told attendees the conference is consistent with Sageworks’ efforts to provide information and develop solutions that help financial professionals and business owners make better financial decisions using data. While financial institutions may need new data for CECL, Hamilton noted that in many instances financial professionals are buried in data. “The problem with data today is not the lack of it,” Hamilton said. “We have tons of data. It’s really distilling that information into something you can make a decision from.” 

For more information on the FASB CECL model and how institutions can start preparing now, download this illustrated guide.

tags: ALLL, ALLL calculation process, CECL