BNN Research Report: Implementing the Current Expected Credit Loss Standard

By Baker Newman Noyes December 2, 2018

Earlier this fall we reached out to CEOs, CFOs, CECL committee members, controllers, and others that are involved in CECL implementation and asked them about the challenges and questions they have.

We received responses from institutions across New England and some preliminary results are below.

75% of respondents were at the VP level or above. Additionally, all respondents were non-SEC filers and all but one was a non-public business entity. Here is a summary of some of the questions in the survey and what we’ve learned so far:

How important do you think CECL implementation is for the future of your bank?

• 31% think implementation is very important. No one thought it was not at all important.

What is your current status for implementation of CECL? Do you feel on track with your CECL implementation?

• 75% think they are on track with implementation and approximately 58% of those who feel they are on track indicated they are in the “Planning & Research” phase, which aligns with the timing of BNN’s recommended non-SEC CECL implementation timeline.

What is your biggest challenge related to CECL?

• 50% think “lack of clarity of what needs to be done” is the biggest challenge. Interestingly, 50% of the institutions who said they were on track with CECL implementation also said they struggle with lack of clarity of what needs to be done.

What are your biggest questions related to CECL?

• There were many responses but some of the common themes were: (1) regulatory guidance, including clarity on choosing and measuring “reasonable and supportable forecasts;” (2) impact on earnings and capital, including how the one-time adjustment to capital will look; (3) appropriate segment sizes and methodologies; (4) steps for actually getting started and the level of complexity of a system that will be needed; and (5) resources that will be required to maintain data.

The professionals in BNN’s financial institutions practice are dedicated to remaining current with the regulatory and accounting trends impacting our clients, and to keeping our clients informed of those trends and how they might impact their businesses. Should you have questions about CECL or the implementation systems and procedures in preparation for it, please contact your BNN advisor at 800.244.7444. You can also learn more about our dedicated CECL Task Force here.