CECL, arguably the largest change in accounting for banks and credit unions in 30 years, presents a multitude of challenges. CECL requires institutions to estimate future losses for the contractual term of a loan - and many struggle with how to report these potential losses, when they haven’t happened. 

Regulators have specified that smaller and less complex financial institutions don’t need to use complex models, but how a small and less complex institution is characterized, has not yet been defined. 

For institutions that view themselves as small and less complex, but are not sure, Ryan Abdoo, of Plante Moran, believes the regulators and industry will look to clarify this matter in the coming year and recommends that you hold off on obtaining an expensive and complex CECL software model for the short term. 

Ryan suggests you can begin designing the calculation of the allowance by identifying pools. First, determine your segments and your classes. For this process, he recommends institutions determine what factors are really driving loss, whether they be debt to income ratios, credit scores, or risk grades for your commercial real estate portfolio.  Once those factors are determined, start gathering data. 

For additional input on these topics, we encourage you to watch this 3.5 minute video from the recent FMS Annual Forum where Ryan was interviewed regarding CECL adoption. 

We’re here to help ensure your road to adoption is smooth. For guidance, please contact us.

Plante Moran is a WBA Silver Associate Member. Visit their website for more information about how changing regulations affect banks. You can also register for their complimentary September 27 webinar, "Implementing the new credit loss model."