Hoosier Banker 43 Last fall the Financial Accounting Standards Board announced its decision to extend the Current Expected Credit Loss accounting standard deadline, giving certain organizations more time to collect and store data required for CECL compliance. Most entities including non-SEC filing public organizations, nonpublic business entities and smaller SEC-filing public organizations now have until 2023 before CECL goes into effect. The extension did not pertain to large SEC-filing organizations – generally defined as having market capitalizations above $250 million – whose deadline remained January of this year. The new accounting standard was previously scheduled to go into effect in 2020 for SEC-filing organizations, 2021 for non-SEC filing public organizations and 2022 for nonpublic business entities including community banks. The timeline extension affords relief for smaller institutions that were scrambling to prepare for CECL, but it may also encourage some to further delay their preparation. As a result, regulators have started incorporating CECL preparedness into soundness examinations. That added scrutiny may increase as the industry learns from large SEC filers’ CECL results and as we move closer to the 2023 deadline. Forward-thinking institutions recognize that, with the proper methodology, the additional data required for CECL provides deeper insights into loan portfolios and risk profiles. New intelligence can be leveraged for competitive purposes as they glean clearer understandings of asset trends, risk components and the profitability of different segments. With more detailed views, for instance, they can implement strategic pricing and tactically promote or pull back on specific products or product groups. Those tempted to delay CECL compliance strategies in light of the extension may risk falling short in CECL Deadlines Extended future soundness examinations and compromise their ability to take full advantage of opportunities presented by CECL. Effectively recognizing and acting on these opportunities, however, can be easier said than done. There is no one-size-fits-all methodology for fitting vast amounts of CECL data together, and methodologies can change at any moment due to external factors. Instead, testing against a range of different scenarios is needed to determine the most appropriate method for fitting the data together to optimize long-term performance. Testing against a range of “what ifs” that uniquely influence an enormous amount of data can make selecting the right method a time- and labor-intensive process, which may reinforce the temptation to delay CECL preparation. Fortunately, financial institutions can streamline the testing process by adopting CECL compliance tools enhanced with scenario-planning capabilities. With automated scenario planning, financial institutions can compare various pool segments, calculation methodologies and even qualitative adjustments prior to finalizing their allowance for loan and lease losses (ALLL) reserve calculations. That means organizations can easily test multiple methods and evaluate the results before committing to a specific one. The ability to test in different environments and scenarios shows how ALLL calculations may change, enabling development of better strategies and contingency plans to maximize profitability. Rather than giving into the temptation to procrastinate, financial institutions would be wise to push ahead on executing their CECL compliance strategy, using the extra time to evaluate automated scenario planning capabilities. That will prevent a last-minute rush to meet the extended deadlines and provide more time to achieve automation for streamlined CECL compliance, competitive differentiation and long-term profitability. HB Rick Martin Product Manager, Financial & Risk Management Solutions Fiserv rick.martin@Fiserv.com Fiserv is an associate member of the Indiana Bankers Association. FEATURE
RkJQdWJsaXNoZXIy MTg3NDExNQ==