Lenders already have practices and policies in place to govern ALLL, so all that really has to change are the inputs—and the way organizations think about estimating losses. The fundamental concept, however, is the same: take all reasonable steps to predict the future state of the portfolio.
Knowing which information already exists is the first step in identifying gaps that need to be filled. Organizations can start getting ready for CECL now by collecting detailed historical data on as many loan types as possible, and as far back as possible. Bigger banks may already have the tools and processes in place to capture this sort of information, while smaller institutions should evaluate their ALLL automation systems to determine whether their software is up to the job of capturing CECL inputs or if it needs to be upgraded or replaced.
This is the first of a mulit-part blog series on what lenders need to know about CECL. We will discuss how CECL is different from historic loss analysis, how your business needs to adjust, and what you can do now to ensure your business remains compliant and competitive.