The implementation of CECL has been called the biggest change in financial institution accounting . . . ever. Under current U.S. GAAP, financial institutions account for losses based on historical events or incurred losses. Beginning in the first quarter of 2020, financial institutions must look at the past as well as the future over the full lifetime of a loan. […]
Banker’s Toolbox adds to its growing compliance solution set AUSTIN, TX – April 5, 2018 – Banker’s Toolbox, Inc., leaders in compliance solutions for America’s community financial institutions, announced today the acquisition of Georgia-based MainStreet Technologies (MST). MST is a leader and industry trendsetter in the loan risk management space, with their flagship Loan Loss Analyzer (LLA) software platform and highly regarded Advisory Services. […]
How many loans do you originate with a maturity of more than three, five or 10 years? The new CECL allowance accounting standard will require a paradigm shift in the way those loans are handled. The longer the terms, the more impact CECL will have on your allowance and bottom line. […]
So how can a financial institution find profits from losses? Graham Dyer, Senior Manager, National Professional Standards Group, Grant Thornton, LLP, explored this topic at the 2016 National ALLL Conference in May. […]
As we have heard from virtually everyone involved in the development of the new CECL model for estimating the allowance, the first thing a bank should do as it begins the transition from an incurred loss to an expected loss model is to assess its data. You will need substantially more and more types of data than you used for your incurred loss calculations. [Read CECL: Ready, Set . . . Go]Using the Loan Loss Analyzer as a Data WarehouseBut it’s not just about how much data you have, it’s about how to use that data to make judgments, assumptions, comparisons. That’s one way an automated system like the MST Loan Loss Analyzer (LLA) proves itself invaluable to a bank. The LLA is your data warehouse, containing all your loan data from all your data sources, your core plus other internal and external data sources. The LLA’s loan reporting function allows the bank to draw upon that data to compile information and conduct analyses it never before thought possible or so time-consuming to render it impractical. […]
Small banks like National Bank of Middlebury are taking the occasion of CECL to replace Excel with an automated allowance solution. CECL promises to make life complicated. Small rural institutions like the National Bank of Middlebury in west central Vermont are used to stability and keeping things uncomplicated. Their due diligence on ALLL automation is built around doing just that. Recently we caught up with Sarah A. P. Cowan, Senior Vice President of the National Bank of Middlebury to talk about her decision to move from Excel to an automated allowance software solution. […]
The new accounting standard for determining bank allowances, Current Expected Credit Losses, or CECL, could have greater impact on capital and profitability than any regulatory action since Dodd-Frank. Because it includes planning for future as well as historical loan losses, CECL is likely to increase the bank’s allowance, 30 to 50 percent on average according to most predictions. But the allowance isn’t the only area where CECL will have a substantial impact. CECL will require more sophisticated methodologies, ways to accumulate and analyze more data, more external intelligence and expertise, additional disclosures and documentation, and because it requires the bank to anticipate losses based to a significant extent on past experience, it might even change the bank’s loan strategy and the makeup of the bank’s loan portfolio. […]
While FASB will not specify a methodology for estimating the allowance under CECL, advisors are telling banks to begin testing models and comparing results with their current incurred loss estimations. As a form of shadow analysis, testing could help the bank determine which model to gravitate toward for CECL as well as provide an idea of the impact on capital, staffing, external support and other areas as well as the allowance. […]
The Basel Committee for Banking Supervision has released a December 2015 document setting out supervisory guidance on “sound credit risk practices associated with the implementation and ongoing application of expected credit loss accounting frameworks.” The guidance, which according to Basel, “should be viewed as complementary to the accounting standards,” lays out 11 principles for how banks and their regulators should be monitoring credit risk and expected credit losses, as follows: […]
It is three years before the first banks will estimate their allowances based on the new FASB accounting standard, Current Expected Credit Losses, already better known as “CECL.” But according to regulators, auditors and accountants, it’s going to take at least that long for banks to ready themselves for CECL. Banks need to begin planning, taking the preparatory steps that will reveal their commitments when implementation is at hand. Here are five things you can do to get ready, each progressively more involved and demanding: […]
