As financial institutions analyze the Current Expected Credit Loss standard (CECL) requirements and begin to run various modeling scenarios in order to ascertain the impact to capital when adopted, some institutions could face substantial adjustments. On the heels of preparing for CECL, the Economic Growth, Regulatory Relief, and Consumer Protection Act (Relief Act) was signed into law which is considered as a long overdue partial rollback of the Dodd-Frank Act. The Relief Act dilutes some of the stringent regulations imposed by the Dodd-Frank on the U.S. financial system, and is primarily aimed at making things easier for small- and medium-sized U.S. banks. Many of these financial institutions were seen as being affected by the tougher rules in a disproportionate manner compared to their larger rivals.
CECL is changing the way financial institutions conduct business, so make sure your processes are putting you on the right path toward compliance.
To the extent of what they can, financial institutions have been processing the requirement demands being cast upon them with the new “Current Expected Credit Loss” (CECL) standard to be implemented. Through a process assessment, most institutions have slowly started to form a picture/plan of how to satisfy the requirements. The 2006 Interagency Policy Statement notes, “The loan loss allowance should take into consideration all available information existing as of the financial statement date, including environmental factors such as industry, geographical, economic, and political factors.”