There have been continual conversations within the financial institution industry as how to best prepare for the upcoming regulatory changes required by CECL (Current Expected Credit Losses). While various methodologies are being considered, the Expected Loss or PD/LGD approach has been discussed in many of those evaluations.
There certainly are several schools of thought as to what needs to be addressed in preparation for CECL. At this point in the game, implementing CECL is starting to become a reality. Most banks have started their preparations but come to a screeching halt when faced with tackling what is quickly becoming known as the hardest challenge of CECL: defining economic drivers.
My advice? Do the prep work and tackling the hard stuff won’t seem as intimidating.
Data, data, data. You have it, but now what? Financial institutions are being bombarded with the need for data in order to be in compliance once the Allowance for Loan and Lease Losses (ALLL) regulatory changes using the Current Expected Credit Loss (CECL) model comes into effect.