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Analysis

2017 US Current Expected Credit Loss (CECL) survey

Explore implications of the FASB’s new credit impairment standard

Implementing the new CECL standard is expected to have broad implications for banks, affecting numerous functions and lines of business. Fortunately, bank executives have a resource as they assess how to comply. Deloitte’s first US CECL survey of 31 bank senior executives explores how banks are responding, as well as the challenges and opportunities they are facing. Navigate a sea change with unique insight.

US CECL survey

Complying with the Financial Accounting Standards Board's (FASB) new CECL standard will require changes across numerous facets of a bank’s operations, including accounting/finance, IT, risk, and the business units. Equally significant are the financial impacts on impairment estimates, capital ratios, and the volatility of profit and loss.

Deloitte’s US CECL survey polled senior executives at 31 US banks to assess how they are planning to implement CECL and the operational and financial impacts they expect. More than 90 percent of surveyed banks agree that the stakeholders involved will include not only credit modeling and the finance/controllers group, but also risk and compliance, IT/systems, the Securities and Exchange Commission/financial reporting group, the Comprehensive Capital Analysis and Review/Dodd-Frank Act Stress Testing reporting groups, and the lines of business.

Surveyed banks also report that CECL will have critical impacts on their financial measures. Most responding banks say that if CECL were in place today, their impairment number would increase by more than 10 percent for consumer loans (75 percent of banks), mortgages (71 percent), and commercial loans (54 percent). To learn how to design a comprehensive CECL program, download the report.

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Major implications of the new accounting standards

Based on the US CECL survey findings, some of the major implications of CECL include the following:

Credit modeling
Banks most often cite development of statistical CECL models (29 percent) as their most challenging implementation task under CECL, while two-thirds name model governance/quality of audit trail/internal controls as a top challenge of model risk management under CECL.

Regulatory capital impact
Due to the revised capital rules issued in 2013, banks will have to consider the expected increase in the allowance on their risk-based and leverage capital ratios and potentially amend capital plans, while also phasing in higher capital requirements.

Operational implications
Efforts to comply with the new credit impairment models will create downstream impact on a bank’s current business processes, control environment, and operating model. Banks will need to adopt a broad approach to end-to-end process redesign.

Financial and regulatory reporting impact
More than 90 percent of surveyed banks in the US CECL survey say that disclosure requirements are a challenge for their bank in implementing the new CECL standard. The challenge of implementing standardized processes and reporting technologies that can satisfy multiple, complex financial and regulatory reporting requirements may be difficult and should be addressed early in the process.

Data and technology considerations
Availability of relevant quality data required to develop CECL estimates will be a significant issue. Many banks cite either obtaining data necessary for credit modeling and loss estimation (23 percent) or defining data requirements to support model development (16 percent) as their most challenging task under CECL.

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Dbriefs Webcast: Implementing the new credit impairment standard

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Although the effective date of the new Financial Accounting Standards Board (FASB) current expected credit loss (CECL) impairment standard is some time away, implementation is likely to be a major undertaking. How can banks prepare now for the dramatic transformation to required credit policies and financial reporting practices? We’ll discuss:

  • Elements of a holistic CECL implementation plan, including timeline and recommended phase by function.
  • Leveraging existing processes, including regulatory capital processes and IFRS 9.
  • Assessing financial impacts.
  • Considerations for developing loss estimation models, including data management, measurement approach, and monitoring, and other operational implications and challenges.

Learn results of Deloitte's CECL survey of US banking executives and considerations for a comprehensive implementation plan.

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Dbriefs Webcast: Implementing the new credit impairment

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