Novantas teamed up with 4most, a U.K.-based credit risk consulting firm, in a webinar aimed at helping banking clients consider the practical implications of a big new financial accounting regulation that is coming down the pike.
Called “CECL: Beyond the Regulators,” the Sept. 12 webinar explored how banks can use the analysis required to meet the regulation as a springboard for assessing lending risk in the future.
The change in GAAP standards, known as CECL (Current Expected Credit Loss), requires U.S. financial institutions to set aside reserves for each loan commensurate with the total future credit losses expected throughout the life of the loan. The new standard, which takes effect for most institutions at the end of next year, is aimed at reducing earnings volatility by better anticipating future credit losses.
Many banks are already deep into the preparations for CECL, building the technology capabilities, hiring vendors, and setting up internal teams to help them meet the new standard.
“Let’s get as much out of this investment as possible,” said Steve Turner, managing director at Novantas, who hosted the webinar. He suggested that banks use the investment in CECL to extend their capabilities to manage credit risk, integrating the results of CECL modeling into day-to-day credit risk management processes
Rob McDowell, a partner at 4most, said banks can learn lessons for implementing CECL from the experiences of institutions in meeting the requirements of IFRS 9, new credit loss standards that took effect outside of the U.S. the beginning of this year. U.S. banks can learn from those experiences on common elements of data collection, model development, and testing that were stumbling blocks for the financial institutions implementing IFRS 9.
For example, some banks bought software too early, a move that inhibited the design of modeling capabilities, he said.
Novantas Director Ryan Schulz noted that banks can also draw from the CCAR and DFAST stress-test modeling exercises that can leverage similar, granular data as required by CECL. In addition to data, he said, the documentation and governance capabilities built for stress testing will give banks a head start for CECL.
Director, New York