Are You Prepared for CECL?

Current Expected Credit Loss (CECL) is a new accounting standard from the Financial Accounting Standards Board that will change how financial institutions evaluate expected credit losses. Early adoption of CECL is not allowed until 2019, and this standard has to be implemented by the start of 2020 for SEC registered institutions. While we focus predominantly on the consumer credit industry, CECL will impact the accounting treatment for all credit assets on a financial institution’s balance sheet. This includes:

• Auto loans
• Credit cards
• Loans to small and large businesses
• Mortgages used to purchase commercial real estate

In short, CECL will change how firms estimate their allowance for loan and lease losses (ALLL). Banking regulators will require comprehensive estimates of expected losses from the starting point of the loan.

How We're Helping Companies Prepare for CECL

In a recent webinar, we asked participants, “where is your financial institution in its preparation for CECL implementation?”  Only 28% responded that they are currently implementing a solution. These results are representative of what I am hearing, as I visit with customers and discuss various options for implementation.

These results also reflect that we are in the early stages of implementation, and most institutions are still developing a process.

It's daunting to consider where to start considering that the regulation is not prescriptive. As a result, you may comply with CECL using a number of methods. For example, the diagram below outlines a simple six-step process that starts with data management and ends with reporting and audit trails. Consider a similar checklist to help you determine your readiness for CECL compliance.
Listen to my conversation about the allowance process.

In conclusion, remember you're not alone when preparing for CECL. We have experts looking at this from every angle and are in a unique position to help you prepare. For more information on how we can help your financial institution prepare for CECL, call your Equifax account representative or fill out a contact us form today. Additional resources can also be found on the Equifax and Moody’s Analytics websites.