7 tips to help you prepare for cecl
TRANSCRIPT
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
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JOIN. ENGAGE. LEAD.
HOW TO PREPARE FOR CECL
7 Tips from the RMA Credit Risk Council
2016 Industry Insights
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
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JOIN. ENGAGE. LEAD.
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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4
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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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8
JOIN. ENGAGE. LEAD.
YOU’LL NEED MORE LOSS DATA (TIP 3 CONT.)
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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9
JOIN. ENGAGE. LEAD.
YOU’LL NEED MORE LOSS DATA (TIP 3 CONT.)
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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JOIN. ENGAGE. LEAD.
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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JOIN. ENGAGE. LEAD.
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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JOIN. ENGAGE. LEAD.
CHANGE YOUR DATA COLLECTION PRACTICES
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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13
JOIN. ENGAGE. LEAD.
CHANGE YOUR DATA COLLECTION PRACTICES
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.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
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JOIN. ENGAGE. LEAD.
CHANGE YOUR DATA COLLECTION PRACTICES
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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15
JOIN. ENGAGE. LEAD.
CHANGE YOUR DATA COLLECTION PRACTICES
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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JOIN. ENGAGE. LEAD.
CHANGE YOUR DATA COLLECTION PRACTICES
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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JOIN. ENGAGE. LEAD.
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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JOIN. ENGAGE. LEAD.
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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JOIN. ENGAGE. LEAD.
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
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