The industry is currently a hive of CECL-related activity. Many banks are busily testing their systems or finalizing their preparations for the go-live date, which is either in January 2020 or somewhat later, depending on the organization. Some are still making plans for implementation, and the rest are worried that they should be.
The theory that banks are now safer because of CCAR, though, has not yet been tested.
Loan-loss provisioning models must take a variety of economic and client factors into account, but, with the right approach, banks can develop sensible loss forecasts that are more accurate and less susceptible to volatility.
As evidence of climate change builds and threats materialize,data will be invaluable in creating a framework for making future credit decisions.
Good-quality CECL projections can be developed using high-quality data that is available free of charge.
If CECL is to be rethought with this aim in mind, policymakers should learn from successful countercyclical features in the economy and design the new loan loss accounting system accordingly.