Resources

The End of the Educated Guess – Part Three

Blog
Industry Trends, Pricing & Profitability, Risk Management
calendar

POSTED

September 16, 2024

user

AUTHOR

Baker Hill

Lenders already have practices and policies in place to govern ALLL, so all that really has to change are the inputs—and the way organizations think about estimating losses. The fundamental concept, however, is the same: take all reasonable steps to predict the future state of the portfolio.

Larger organizations as a whole are better positioned to make the transition to CECL because they have plenty of data to drive the new calculations and enough expertise on staff to manage the associated IT tasks. Smaller lenders like community banks vary in their readiness; some, such as those with a high concentration of CRE loans, have already been collecting most of the data points needed to feed an expected-loss forecast, while others will be starting from scratch.

If possible, it is best to run CECL models now so multiple tests can be performed and systems and processes can be tuned before the standard becomes mandatory and penalties go into effect.

Context, Clarity, and Confidence With CECL

Implementing CECL will drive banks to collect more data, build more effective processes, and develop more robust methodologies. The key word here is more.

But more is not better by itself, and many organizations have learned the hard way that a lot of data does not necessarily equal a lot of insight. Data needs to be placed in context to be understood, and it needs to be understood in order to drive better decision-making. That is the aim of CECL—to help organizations gain a fuller understanding of why previous loans behaved as they did so the behavior of future loans can be predicted.

The end result for banking leaders should be greater confidence in their institutions’ ability to withstand fluctuations in the economy and greater clarity on the risks associated with their decisions. Although change is never easy, the pay-off for organizations that do a good job of implementing CECL will be better decision-making and, as a result, lessened risk.

Be sure to check out Part One and Part Two of this series!

Additional Resources

Subscribe to our Newsletter

Our integration team is ready to work with you to meet your unique integration needs.

Ready to Start?
Request a Demo.

Our integration team is ready to work with you to meet your unique integration needs.

GET STARTED

Why Use an LOS?

A loan origination system is the key to scaling lending.

EVOLVE WITH US

Why Choose Baker Hill

Baker Hill’s modular system accelerates your success.

EXPAND AND GROW

Partners & Integrations

Build a complete lending ecosystem with robust integrations.

marquettebank

“170% increase in loan production”

Marquette Bank cites tangible, transformative outcomes.