The CECL Handbook: A Practitioner’s Guide
First published:
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Challenges and solutions for wholesale portfolios
Jimmy Yang and Kenneth Chen
Introduction
An overview of CECL: setting the context
Outlining the most impactful assumptions and challenges under CECL: an auditor’s view
Outlining the most impactful assumptions and challenges under CECL: a banker’s view
A banking industry perspective on key CECL decisions
Challenges and solutions for wholesale portfolios
Challenges and solutions for retail mortgage portfolios
Challenges and solutions for retail credit card portfolios
Challenges and solutions for student loans
Challenges and solutions for securities portfolios
The evolution of purchased loan accounting: from FAS 91 to the CECL transition
Challenges and solutions for qualitative allowance
Challenges and solutions: an auditor’s point of view
Early view of CECL integration into stress testing: practical approaches
Too many cooks in the kitchen: mastering the art of managing CECL volatility
Beyond CECL: rethinking bank transformation
Data collision: efficient lending under CECL
Cutting through the hype: how CECL is impacting investor views of procyclicality, credit analysis and M&A
Concentration risk: the CECL magnifying glass
Closing thoughts
Most large financial institutions began implementing CECL from January 1, 2020.11 In November 2019, the Financial Accounting Standards Board (FASB) published new guidance that allows financial institutions meeting certain criteria to delay CECL implementation until 2023 (see https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176173775344&acceptedDisclaimer=true). Since then, there are a wide range of industry practices, challenges and lessons that could help industry participants with ongoing enhancements, as well as with the 2023 filers for any initial CECL implementations. General industry observations cover rule interpretations, methodology development, and implementations, validation, production processes, internal communications, ongoing monitoring, and downturn readiness. At the time of writing, the COVID-19 pandemic posed a significant risk to the overall economy and to financial institutions’ wholesale portfolios. Implementing CECL in such an environment, including the unprecedented stimulus packages offered by various governments, has drastically increased the challenges to financial institutions’ CECL systems. Industry participants have been “taking notes”, and
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