Almost a Quarter of FIs Don't Have CECL Implementation Committees
About a quarter of financial institutions haven’t formed CECL implementation committees yet, according to new data from risk software company Sageworks.
The Raleigh, North Carolina-based firm polled 172 financial institution chief credit officers, chief financial officers, vice presidents of finance, controllers and senior credit staff last month and found that 23% did not have committees dedicated to CECL implementation. Another 5% of the respondents weren’t sure or weren’t involved. The poll also found that 18% had named committee participants but hadn’t taken any action, and 32% had CECL implementation committees that had met a few times but did not have a finalized project plan. Only 22% had CECL implementation committees that were executing on established project plans.
The rules around the CECL standard, which stands for Current Expected Credit Loss, require credit unions and other organizations to measure expected credit losses using historical experience, current conditions, and reasonable and supportable forecasts. The Financial Accounting Standards Board finalized the new rules regarding credit losses back in June of 2016, fundamentally changing how credit unions, banks and other financial institutions calculate their loan loss reserves.
Now the clock is ticking on implementation: the standard takes effect in 2020 for U.S. Securities and Exchange Commission (SEC) filers and 2021 for all financial institutions. Credit unions can implement CECL in 2019 if they choose.
Whether a credit union or other financial institution has a CECL committee at this point seems to depend to some degree on size, according to Sageworks Executive Risk Management Consultant Tim McPeak.
“Broadly speaking, our experience to date has been that the larger institutions have been a little bit further ahead in the CECL planning process,” he explained. “SEC-filing banks, in particular, probably have some degree of extra pressure from a timing standpoint.”
McPeak said it’s not surprising that most CECL implementation committees have only met a few times and don’t have finalized project plans.
“I don’t think that’s a bad place to be in 2017. Though time is definitely ticking away, there is still some time, and in thinking about this, the size and complexity of your institution does matter in determining what steps need to be taken when,” he said. “Not having every detail of your project plan does not mean you are behind at this point. However, now is the time to move into thinking through these things.”
CECL implementation committees should include senior staff from several departments, such as finance, credit, risk management, IT and audit, he added. Gathering data, reevaluating IT budgets and staying on track to meet deadlines are also important steps in CECL implementation, experts have said.