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Measure Your CECL Handicap

Golfers perform at different levels or handicap, which measures a golfer’s skill. Some have played for years and can adjust to a new course much faster than those that are novice to the game. In such cases, the use of a caddie can be of great value for navigating past hazards and improving their overall success. Such is the same with CECL implementation, and Valuant stands ready to serve as your “CECL caddie” in this two-part series. It’s our pleasure to help coach your institution.

Let’s begin with strategies for how institutions seeking to become CECL-compliant can utilize third-party platforms and services. Next week in part two, you will hear 2020 CECL implementers share their experience and advice for 2023 adopters.

Just like a golfer’s selection for a caddy, an institution’s selection for a CECL provider is based on any number of factors such as experience, in-house expertise, resource availability, and institution/model complexities. An institution looking to begin their CECL journey may seek more assistance from their provider than a bank who has several parallel runs under their belt. A comprehensive third-party provider should offer a variety of solutions and service deliverables to accommodate the specific needs, skill-level, and uniqueness of a financial institution for the implementation and management of CECL. Some examples include:

Scenario 1

Your financial institution selected a methodology in-house and has the expertise to stand up a platform for the management of your CECL model. CECL presents an excellent opportunity to escape Excel spreadsheets and automate.

Response: You might seek out a third-party platform that conforms to your desired methodology and take on the responsibility of software implementation and configuration.

Scenario 2

In direct contrast to the above, your financial institution prefers or requires a more hands-off approach to CECL.

Response: You can send your data to the service provider periodically, and with little input, can have the service provider compute your reserves, prepare reports, produce disclosures, etc. 

Scenario 3

Most commonly, your financial institution seeks a platform to manage CECL internally but with the assistance and support of a service provider.

Response: This comprehensive, collaborative solution should include methodology development, data conversion, platform configuration, training, and support. It should also include transition, audit, and regulatory support.

These are a few examples of the support levels a seasoned CECL provider should offer to ensure its clients’ success. Selecting a provider that is flexible enough to incorporate a hands-on, hands-off, or a partnership approach can provide your institution with just the right amount of guidance as your bank’s “CECL Handicap” evolves. For more information, contact us.

Join us next week for Part Two- CECL advice for the 2023 adopter from the perspective of 2020 implementers. 

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As part of an annual study that began in 2020, Valuant conducts analysis on ASC 326, commonly referred to as “CECL”. The study contains key data statistics and insights around the US Regional and Community Banking sectors and the impact CECL has on their Allowance for Credit Loss (ACL) Coverage Ratios.

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