3. Qualitative Framework At this stage, your institution should address model weaknesses and incorporate model uncertainty. Weaknesses vary, so prepare your institution for calibrating the historical loss basis, whether peer-based or based on internal experience, to anticipated economic conditions and projecting those same conditions. 4. Operationalize Model In the final stage of this CECL implementation timeline, institutions should conduct retrospective parallel calculations and sensitivity tests in different environments. Financial institutions should understand how uncertainty about the future provides an important lever to calibrate allowance results and how that uncertainty can be used to establish a ‘baseline’ of allocation. As the 2023 deadline becomes less distant, community banks will need to devote a significant amount of time and resources to their CECL processes. But with organization, determination, and expert assistance, they can build a credible and efficient model, overcome roadblocks, and stay on time. Takeaway 1 “Analysis paralysis” and the pandemic put CECL implementation on the backburner for many CFIs. Takeaway 2 CFIs getting started with CECL should consider possible partnerships and assess their data. Takeaway 3 In 2022, consistency is key. Each quarter represents an opportunity to make progress on CECL implementation. bkd.com/fs • @BKDFS Handing you the keys to success. Your bank works hard to make customer dreams become reality. Our talented, supportive pros can help you stay compliant, manage risk, and grow strategically, so you can focus on building equity in your community. Everyone needs a trusted advisor. Who’s yours? Kate Stoneburner is a Content Marketing Manager at Abrigo, where she works with industry thought leaders to create digital content that helps financial institutions better serve their customers. Before joining Abrigo, Kate managed social media and produced articles for Campbell University’s quarterly magazine and other university content initiatives. She earned her bachelor’s degree in strategic communication and professional writing from Miami University. Continued from page 15 www.coloradobankers.org 16
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