Get 7 tips from the RMA Credit Risk Council's "2016 Industry Insights" on how to prepare for the implementation of the Current Estimated Credit Loss (CECL), which is expected to be in force in 2019. Learn what you should be doing now to prepare.

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HOW TO PREPARE FOR CECL
7 Tips from the RMA Credit Risk Council
2016 Industry Insights

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Familiarize yourself with
CECL’s requirements.
LEARN ABOUT ITTip 1

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HOLD CECL MEETINGSTip 2
Discuss implementation
of CECL with the board
of directors, industry
peers, external auditors,
and supervisory
agencies.

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THE DATA GAP IS REALTip 3
Identify data needs
and changes.

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THE DATA GAP IS REAL (TIP 3 CONT.)
There are new rules regarding the need for:
Robust data
collection
methods
Q-factors
Capital
adjustments

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THE LOOMING CHANGE TO CECL UNDERSCORES
A VERY REAL ISSUE (TIP 3 CONT.)
Many mid- and small-sized banks are not collecting
or analyzing enough data.
This data gap hurts their:
Profitability
potential
Regulatory
compliance
stance
Overall risk
management
efforts

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YOU’LL NEED MORE LOSS DATA (TIP 3 CONT.)
Banks preparing for the CECL
model are quickly realizing the depth
of the data gap.
Financial Accounting Standards Board (FASB)
says CECL will be effective in 2019.

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YOU’LL NEED MORE LOSS DATA (TIP 3 CONT.)
As FASB moves the industry from
a time-specific incurred loss
model for reserves to an over-the-
life-of-the-loan expected loss
model, you will need far more loss
data than you have likely been
collecting.

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YOU’LL NEED MORE LOSS DATA (TIP 3 CONT.)
In addition to the fields currently used to calculate
the Allowance for Loan and Lease Losses (ALLL),
CECL will require banks to capture:
Risk
ratings
Durations Balances
Charge-
offs and
recoveries
Segmenta
-tions on
individual
loans

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To bridge the data gap,
you need to change your
data collection practices.
Change
practices for:
• Closed
credit files.
• Open credit
files.
• Future credit
files.
BRIDGE THE GAPTip 4

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CHANGE YOUR DATA COLLECTION PRACTICES
FOR CLOSED CREDIT FILES (TIP 4 CONT.)
Ensure your core processor is
retaining closed credit files
for as far back as allows
you to recreate accurate, historic
averages for your bank’s
life-of-loan losses.

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CHANGE YOUR DATA COLLECTION PRACTICES
FOR CLOSED CREDIT FILES (TIP 4 CONT.)
Keep in mind that CECL
compliance requires that this
historic picture be both defensible
and documentable.

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CHANGE YOUR DATA COLLECTION PRACTICES
FOR OPEN CREDIT FILES (TIP 4 CONT.)
Cull through credit files currently
on the books and pull the
additional data fields that will be
required for CECL.

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CHANGE YOUR DATA COLLECTION PRACTICES
FOR OPEN CREDIT FILES (TIP 4 CONT.)
This work within your existing portfolio
will help your bank estimate the one-
time capital hit it can expect when
CECL goes into effect.

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CHANGE YOUR DATA COLLECTION PRACTICES
FOR FUTURE CREDIT FILES (TIP 4 CONT.)
Determine the most effective and
cost efficient way to gather CECL
life-of-loan data upon origination
going forward.

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CHANGE YOUR DATA COLLECTION PRACTICES
FOR FUTURE CREDIT FILES (TIP 4 CONT.)
This determination will require
both system and process
reviews.

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MORE DATA HAS ITS UPSIDE (TIP 4 CONT.)
More data equals better
decision making, which
leads to more successful
results.

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IDENTIFY TECHNOLOGY
NEEDS AND CHANGES
Today’s cloud-based analytics
tools make it more affordable
and feasible for banks of all
sizes to analyze critical data
across their various systems
and functions.
Tip 5

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Review existing risk management
practices and identify processes
that can be leveraged for CECL.
LEVERAGE PROCESSESTip 6

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PLAN YOUR IMPLEMENTATION
Determine how and
when to begin
collecting the
additional necessary
data.
Tip 7

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The Credit Risk Council supports
professionals who are responsible for
establishing, maintaining, or carrying
out credit risk management policies.
The council focuses on funded and
off-balance-sheet risk management,
including capital markets activity, and
other forms of credit intermediation
and risk mitigation.
ABOUT THE RMA
CREDIT RISK COUNCIL

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RMA's community bank members
(banks with assets under approximately $10B)
are eligible to join the service.
Find out more about the
RMA Community Bank CECL Service.
Not a member?
Become an Institutional member today.
ABOUT RMA’S COMMUNITY BANK
CECL SERVICE

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