7 Tips to Help You Prepare for CECL

Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending

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HOW TO PREPARE FOR CECL

7 Tips from the RMA Credit Risk Council

2016 Industry Insights


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Familiarize yourself with

CECL’s requirements.

LEARN ABOUT ITTip 1


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HOLD CECL MEETINGSTip 2

Discuss implementation

of CECL with the board

of directors, industry

peers, external auditors,

and supervisory

agencies.


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THE DATA GAP IS REALTip 3

Identify data needs

and changes.


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THE DATA GAP IS REAL (TIP 3 CONT.)

There are new rules regarding the need for:

Robust data collection methods

Q-factors

Capital adjustments


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THE LOOMING CHANGE TO CECL UNDERSCORES

A VERY REAL ISSUE (TIP 3 CONT.)

Many mid- and small-sized banks are not collecting or analyzing enough data.

This data gap hurts their:

Profitability potential

Regulatory compliance

stance

Overall risk management

efforts


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YOU’LL NEED MORE LOSS DATA (TIP 3 CONT.)

Banks preparing for the CECL

model are quickly realizing the depth

of the data gap.

Financial Accounting Standards Board (FASB)

says CECL will be effective in 2019.


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As FASB moves the industry from

a time-specific incurred loss

model for reserves to an over-the-

life-of-the-loan expected loss

model, you will need far more loss

data than you have likely been

collecting.


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In addition to the fields currently used to calculate

the Allowance for Loan and Lease Losses (ALLL),

CECL will require banks to capture:

Risk ratings

Durations BalancesCharge-offs and

recoveries

Segmenta-tions on individual

loans


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To bridge the data gap,

you need to change your

data collection practices.

Change

practices for:

• Closed

credit files.

• Open credit

files.

• Future credit

files.

BRIDGE THE GAPTip 4


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CHANGE YOUR DATA COLLECTION PRACTICES

FOR CLOSED CREDIT FILES (TIP 4 CONT.)

Ensure your core processor is

retaining closed credit files

for as far back as allows

you to recreate accurate, historic

averages for your bank’s

life-of-loan losses.


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FOR CLOSED CREDIT FILES (TIP 4 CONT.)

Keep in mind that CECL

compliance requires that this

historic picture be both defensible

and documentable.


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FOR OPEN CREDIT FILES (TIP 4 CONT.)

Cull through credit files currently

on the books and pull the

additional data fields that will be

required for CECL.


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FOR OPEN CREDIT FILES (TIP 4 CONT.)

This work within your existing portfolio

will help your bank estimate the one-

time capital hit it can expect when

CECL goes into effect.


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FOR FUTURE CREDIT FILES (TIP 4 CONT.)

Determine the most effective and

cost efficient way to gather CECL

life-of-loan data upon origination

going forward.


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FOR FUTURE CREDIT FILES (TIP 4 CONT.)

This determination will require

both system and process

reviews.


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MORE DATA HAS ITS UPSIDE (TIP 4 CONT.)

More data equals better

decision making, which

leads to more successful

results.


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IDENTIFY TECHNOLOGY

NEEDS AND CHANGES

Today’s cloud-based analytics

tools make it more affordable

and feasible for banks of all

sizes to analyze critical data

across their various systems

and functions.

Tip 5


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Review existing risk management

practices and identify processes

that can be leveraged for CECL.

LEVERAGE PROCESSESTip 6


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PLAN YOUR IMPLEMENTATION

Determine how and

when to begin

collecting the

additional necessary

data.

Tip 7


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The Credit Risk Council supports

professionals who are responsible for

establishing, maintaining, or carrying

out credit risk management policies.

The council focuses on funded and

off-balance-sheet risk management,

including capital markets activity, and

other forms of credit intermediation

and risk mitigation.

ABOUT THE RMA

CREDIT RISK COUNCIL


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RMA's community bank members

(banks with assets under approximately $10B)

are eligible to join the service.

Find out more about the

RMA Community Bank CECL Service.

Not a member?

Become an Institutional member today.

ABOUT RMA’S COMMUNITY BANK

CECL SERVICE

http://www.rmahq.org/community-bank-cecl-service/?gmssopc=1

http://landing.rmahq.org/membership


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The Risk Management Association (RMA) is a member-driven

professional association whose sole purpose is to advance sound risk

principles in the financial services industry.

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performance and financial stability, and enhance the risk competency of

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Economy & Finance

7 Tips to Help You Prepare for CECL