What were your New Year’s resolutions? With our sole focus being the allowance, you might guess that ours are all about getting you ready for CECL. So if you’ve come up short on resolutions for 2019, we’ve got a few suggestions.
CECL New Year’s Resolutions
From Senior Advisor Paula King
With a “go-live” date of Q1 2020, SEC registrants should be well on their way to CECL compliance. Resolve to spend 2019 parallel testing your incurred loss model against your preliminary CECL model(s) and pooling structure(s), making adjustments each quarter as you test. While 2018 was a year for determining methodologies and loan segments, 2019 should be a time to focus on tweaking, and on structuring your qualitative factor framework and forecast component (identification of pertinent economic indicators, correlation analysis, etc.). As you walk through the testing phase and determine qualitative and forecast adjustments, begin developing your accompanying documentation (e.g. narrative or memo) to support your CECL calculation. Writing down your process will not only solidify your understanding of your model, it should provide insight into any necessary changes. Spending 2019 as a “practice” session will minimize surprises on Day 1 of CECL.
From Data Analyst Zach Langley
Financial institutions that haven’t done s0, should be developing their data “wish list.” This wish list is comprised of data fields that they are not capturing today but will need for their CECL model, or fields they are capturing today but haven’t done so historically and will begin capturing and maintaining historically starting in 2019.
From Senior Advisor Tom Flournoy
- Early in 2019, institutions should make a thorough assessment of where they are in their CECL transition process. SEC banks should be preparing to run parallel models and tweaking the results. Public business entities (PBEs) should be approaching the implementation phase. Non-PBEs should be starting their CECL project with the goal of having a transition blueprint this year.
- Institutions that have not started their transition need to address CECL now. Identify the resources and outside assistance you will need. Your status is like boarding a flight in Zone 4 with a big carry-on piece of luggage. Will there be enough bin space – or for CECL, enough time?
- If you are dependent on a core provider’s resources to complete your CECL project, you need to be exerting pressure on your client rep now.
- If your institution is delayed at a certain point in the CECL process, find other things you can do. For example, evaluate pooling possibilities or data history collection if you are in the early stages and waiting for input from executive management. Or evaluate your Q-factor process if you are nearing implementation but in a holding pattern.
If you need help developing your CECL resolutions, contact us. We’ll work with you to develop your own list, then help you make sure you follow through on every one of them.