CECL Regulation – Best Practices for Effective Implementation
The implementation of CECL regulation by banks/FIs will require the most significant changes to their systems and processes to date. These changes and impacts are expected to rise in terms of significance in tandem with loan portfolio complexity. A major impact will be the one-time capital adjustment due in 2022, when banks/FIs choose their loss estimation methodologies. Therefore, the process carries strategic importance and calls for investment in resources.
Banks/FIs face key challenges amid facilitating their portfolio growth, and will need robust risk modeling for their reporting requirements. Data facilitation therefore becomes critical.
- Loan categorization and its importance in determining suitable loss estimation methodologies and data required under each methodology
- Assessing the suitability of data and characteristics of granular data gathered and testing based on various scenarios
- Managing data and assuring quality using a managed service model
- Ensuring sufficient data and unraveling gaps in quality to arrive at realistic loss estimates
- Managed services solution and its importance in helping a bank/FI to optimize the data gathering process with the bank’s front end striving for portfolio growth
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