Beyond CECL: rethinking bank transformation

Christopher Stanley

Traditional banking faces multiple headwinds, but two are prominent in executives’ attention: disruption from financial technology (fintech) start-ups; and increased credit costs following transition to current expected credit loss (CECL) reserve methodologies. Following successful CECL implementations, credit executives are well-positioned to influence a strategic response. Focused investment in existing credit capabilities keeps banks competitive. Leveraging CECL tools also maximises return on a compliance investment, and delivers a significantly more cost-effective transformation than the organisational rebuild that is more commonly envisioned.

The transition to the CECL reserve model refocused industry participants on the cost of credit. Pre-adoption estimates indicated a significantly higher carrying cost for most asset classes, with a material impact to longer duration receivables such as mortgage and credit card loans. Regulation, secondary market expectations and competition limit banks’ ability to pass these costs on to borrowers. From this position, prospective competitiveness depends on effective management of other components of banks’ cost structure. Efficiency

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