Last week in part 1 (Measure Your CECL Handicap) of this 2-part series, we discussed how to measure your CECL Handicap, and how a CECL “Caddie” will help to ensure a successful implementation for your institution. Golf experts agree that a caddie will determine the difference between a good game or a bad game. A good caddie intimately knows the course, obstacles to avoid, and best strategies.
Today, you will hear from your peers who have been on the CECL course for years, and like Valuant will serve as your CECL Caddie as your bank prepares for 2023 adoption. Peers include Atlantic Capital Bank (a $2.7 billion bank headquartered in Atlanta, GA), Live Oak Banking Company (a $5.1 billion bank headquartered in Wilmington, NC), and WesBanco (a $15.9 billion bank in Wheeling, WV). While each of these CECL Caddies has a unique perspective, they all agree that 2023 adopters need a third party to help them navigate through the implementation and management of CECL.
Gray Fleming, EVP & Chief Risk Officer at Atlantic Capital, shares that 2023 adopters should “use a vendor.” That is not to say that the model, methodology, or calculations need to be complicated, but it is “easier to manage and, importantly, to document and support when using a vendor-built model.” Mr. Fleming adds, “select your vendor first, then work with them and their solution to determine the best CECL methodology that fits your bank and your data capabilities. Don’t overcomplicate. CECL does not need to be difficult once you have the model set up, and several good methodologies can support various business models and levels of data capabilities. “Start sooner rather than later. You will find data gaps and need time to either fill those or, if necessary, change your methodology to fit the available data you have.”
Similar to Mr. Fleming, David Briley, CPA, and Accounting Manager–Risk at Live Oak Banking Company, suggests banks “should engage a third-party for CECL” to assist in thinking and to work through all the facets of methodology and model management, implementation, transitioning, audit & regulatory support, etc. “Third-party CECL providers live and breathe CECL day in and day out and are actively involved in inner circle discussions which broaden our internal knowledge.” As for what a 2023 adopter should be doing today, Briley says, “banks need to be actively engaged in CECL due-diligence. That is, visiting with peers, meeting with potential vendors, and formalizing CECL committees and responsibilities.”
Caddies from WesBanco Jon Ours, SVP Model Risk Management, Dr. Joseph Busche, Senior Quantitative Analytics Officer, and Brian Mann Model Risk Management Analyst, agreed that 2023 adopters need to get to CECL as soon as possible. Like the previous caddies mentioned, WesBanco informally started CECL preparations approximately four years ahead of implementation with regular (or in WesBanco’s scenario, “weekly”) meetings starting some two years ahead of implementing the new standard. Mr. Ours highly recommends a “multi-department CECL committee” that can interact as a group with stakeholders, auditors, and regulators throughout the process. Another point of interest communicated by Dr. Busche is “documentation for modeling, methodology, and the transition has to be concise and complete” and that owners “need to know when/where management experience can and should trump model metrics.”
Every successful golfer has a great caddie. Valuant and your peers, as presented here, serve as guides, instructors, and partners to ensure your successful implementation of CECL.