Pub. 11 2022 Issue 3 29 documentation should create an allowance calculation process that can be replicated, particularly if there is turnover in key positions involved in CECL processes. Investing the time and resources today in the documentation process will help an institution reduce costs and increase efficiencies in the future. What to Document? When considering what items to document, financial institutions should think about what information is needed to ensure the process is replicable. This includes recording all key model decision points, all inputs and assumptions, and management’s assessment of the reasonableness of inputs and assumptions. Starting the documentation process early will help lead to a less stressful and more successful adoption process. Documentation should describe an institution’s journey from start to finish in implementing the standard. Examples of key phases and items to document in the planning phase include: Planning & Project Development • CECL Committee team or members • The role/responsibilities of each individual team member • The CECL implementation estimated timeline • Determination of in-scope assets and applicability • Consideration of available-for-sale and held-to-maturity securities Data Gap Analysis • Data fields considered and used • Years, format, and availability of historical data available • Reliability of data fields used (consideration of completeness and accuracy) • Determining completeness of future data and descriptions on how the data will be accurate • Data source, relevancy, and reliability considerations for economic forecasts and current condition Pooling Segmentation • Size of each segment relative to the portfolio in terms of dollar value and number of loans • Risk characteristics and underwriting guidelines associated with each segment • Appropriateness of segments based on size and risk factors • Accessibility of data relating to each segment now and in the future • Reconciliation of loan codes to CECL segments Model Selection & Development • Models considered and appropriateness of model selected • Considerations of in-house versus outsourced models • Determination of historical loss rate and historical loss period • Current unfunded commitments and estimated future funding percentages • Future forecast data considered and relationship with risk of segment or portfolio • Qualitative factor descriptions and relevancy to segments or portfolio • Prepayment speed assumptions, development process, and reasonableness • How incomplete or unavailable data was supplemented or addressed During pre-implementation, it’s critical to invest the time and resources to document management thought processes as they plan, gather data, and make key decisions regarding Continued on page 30 Regulators and auditors will expect organizations to understand their model and be able to articulate why it is appropriate for their institution.
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