Whitepaper: CECL Build – Is it Enough?

A framework to understand the extent of your allowance build

The Accounting Standards Update known as CECL has been a long time coming. The new allowance guidance enables financial institutions to put aside reserves based on a reasonable and supportable forecast of future conditions. As such, it tries to resolve the “too little/too late” problem, allowing financial institutions to reserve for downturns during good times. 

We set out to estimate, based on 14 top financial institutions, a lower- and upper-bound current expected credit loss (CECL) estimate as of March 31, 2020. Using individual institutions’ experiences and a few other heuristics measures, we seek a method that can help triangulate on a reasonable range of reserves and establish a methodology that can be used for future quarters. 

In this paper we will:

  • Review a sample set of banks in our dataset
  • Explain methodologies used as benchmarks
  • Establish a triangulation method
  • Review dataset average results
  • Review bank-specific results