The Federal Accounting Standards Board’s (FASB) new Current Expected Credit Loss (CECL) requirements present both a challenge and an opportunity. With the right advice and robust tools, you’ll have the flexibility you need to make CECL work—for you and your loan customers.
When it comes to picking a CECL solution, the right tools and insights are key. You’ll need to keep multiple tasks in play at the same time to meet your CECL effective date.
You need a trusted partner that can provide professional insight and support, keep key stakeholders engaged, and set benchmarks for smooth CECL implementation.
Critical components to manage include:
Don’t let CECL intimidate your organization. Our comprehensive guide provides the expert guidance you need to select a CECL partner to ensure sustained growth.
CECL data requirements present a significant hurdle for financial institutions. The days of disparate data silos, spreadsheets, and paper files are over. To satisfy CECL standards—and harness the business potential it provides—you’ll need a sophisticated, configurable solution.
Before you map your solution, you need a holistic view of your current data environment. Depending on your institutional needs, you may already have significant amounts of historical loan data, but it might be housed in a wide variety of formats that cannot be leveraged to calculate your expected credit loss.
Baker Hill® can help you capture that data and provide expert advisory services to help you leverage your data into a strategic advantage. Here’s how:
Banks and credit unions often wonder if they can use their current loan pools to satisfy CECL. While in some cases institutions already use highly granular classification, the vast majority should re-examine loan pools to get the most out of CECL data requirements.
Additionally, you’ll want to make sure that your pooling helps you minimize the loss provision expense by accurately segmenting your loan portfolio to the right level of risk. You need a solution that gives you the flexibility to create and manage your loan pools and the corresponding loss methodologies you apply.
Don’t settle for compliance. Use CECL data requirements to enhance your success.
Once you’ve captured all of your loan level data to calculate your credit risk loss, take your efforts one step further with sophisticated portfolio monitoring. You need a CECL solution that constantly looks for credit trends and loan activity at the pool level and makes sure that no surprises impact your loss provision.
CECL will inevitably shift the industry’s approach to lending, but enabling your institution to confidently calculate forward-looking loss estimates will result in an optimally-sized reserve with minimal income volatility.
Proactively approach CECL data requirements to accomplish strategic growth objectives.
FASB allows wide latitude for financial institutions to choose the CECL methodologies that make the most sense for their unique portfolios. To get the most from your CECL solution , you’ll need to go beyond your existing Allowance for Loan and Lead Losses (ALLL) frameworks and pick the right loss methodologies to apply to your loan pools.
When it comes to selecting CECL loss methodologies and applying them to your loan pools, one size doesn’t fit all. You need more nuanced analysis to meet CECL requirements and to take steps to minimize your loss provision expense and maximize profitability.
While FASB guidance includes several CECL methodologies, organizations can select the right credit risk indicators to meet the actual goal of their CECL implementation—more accurately predicting and managing risk.
Choosing a CECL model makes financial institutions nervous, but you don’t have to go it alone. Working with experienced partners and allowing adequate time for establishing loan pools and evaluating methodologies can remove the stress from this critical aspect of CECL implementation.
CECL will inevitably shift the industry’s approach to lending, but enabling your institution to confidently calculate forward-looking loss estimates will result in an optimally-sized reserve with minimal income volatility.
When preparing for CECL implementation, leave adequate time for validation. Gradually implementing new processes for data collection, analysis, and CECL risk assessment is more cost effective—and far less stressful—than a last-minute rush to the deadline.
As you consolidate data, fill gaps, select loss methodologies, and build new systems, you’ll need to test and refine your selections for accuracy, efficiency, and effectiveness.
Building in time for assessment and validation not only minimizes risk, but also maximizes your chances for successful CECL implementation.
How the Current Expected Credit Profit (CECP) can help with CECL implementation.
As you drive toward CECL readiness, prepare to have your methodologies and assumptions tested by external auditors. CECL governance requires a higher volume of documentation due to the expansion of data and addition of detail throughout the risk assessment process.
Baker Hill NextGen CECL gives you data and tools to validate and document your CECL strategy.
As with other aspects of CECL implementation, the reporting component allows for flexibility to support unique circumstances among financial institutions. Because the standards are based on a principle of more robust loan analysis, banks and credit unions can gain insights to help management make more profitable and informed decisions.
Effective CECL governance prepares your institution for external audits, and also positions you for better decision making—leading to growth and profitability over time.
Changes to the regulatory environment may simplify CECL governance for small- to medium-sized financial institutions.
CECL doesn’t have to be overwhelming. With the right guidance and solution, putting the new requirements into effect can position you for lasting success. Reduce the complexity of CECL with Baker Hill NextGen. Our team of trusted experts helps you navigate CECL smoothly.
Meeting CECL standards by your implementation deadline becomes feasible when you partner with Baker Hill.
Trusted by financial institutions for more than 30 years, Baker Hill specializes in applied financial expertise—integrating industry-wide best practices with the latest changes in the financial services market.
When it comes to CECL readiness, Baker Hill walks with you through every facet of the process. We leverage our strengths in risk management, portfolio monitoring, and technology to create a CECL solution based on your unique portfolio, institutional profile, and current data environment.
Regardless of where you stand today, we can help you map out a strategy for your CECL readiness. Working with your stakeholders and staff, we’ll make sure that:
Baker Hill is in the business of evolving loan origination by combining expertise in technology with expertise in banking. Baker Hill NextGen® is built on decades of walking alongside banks and credit unions as they provide vital resources to their communities. A configurable, single platform SaaS solution for commercial, small business, consumer loan origination and risk management that grows along with you as your business needs change, Baker Hill is lending evolved.
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