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The CECL Revolution

By Steve Picarillo

April 16, 2019

The Current Expected Credit Losses (CECL) transition is fundamentally transforming the way banks and financial service entities manage risk, lending, investment decisions, and their financial profiles.

Getting it right is essential for financial institutions, not just for compliance purposes but also to leverage the newly developed and costly CECL models to better manage the overall risk profile of the business.

The CECL revolution, over time, will transform credit management. We believe it will be a three-phased process:

  1. Compliance. This stage already is underway and will continue through 2021 and 2022. Most banks currently view CECL as an accounting and compliance exercise. The focus has been on meeting the GAAP requirements and near-term regulatory expectations.
  2. At many larger banks, the regulators already are beginning to ask how the CECL models are being absorbed into day-to-day credit and risk management. This will take two forms:
    • Improvement of existing CECL models toward ‘industry best standard’ practice
    • Installation of CECL into credit decisioning
  1. Integration. Stage three of the CECL revolution will begin shortly after adoption of the new standard and push integration of the CECL model into a full range of issues. These include pricing, exposures, administration, credit reviews, investment decisions, and data collection.

So, what do these changes mean for you, and how can you make the transition as smooth as possible? Ankura experts Steve Picarillo and David Giesen are hosting a webinar on April 17, 2019 during which they will discuss these issues and more, including compliance, absorption, and integration of the CECL transition.

The Ankura approach

Ankura transaction advisory services (TAS) and risk advisory services (RAS) professionals have a long-standing track record of creating innovative solutions to assist financial services clients in managing and resolving critical and complicated risk and regulatory-related matters.

We offer our clients a wide range of services, spanning from full-service project planning and execution to providing subject matter experts and consulting services for specific functions, such as model development and validation, LIBOR and CECL transitions, readiness assessments, strategic planning, balance sheet optimization, and various risk and regulatory topics.

Ankura’s experts are highly qualified, with industry-leading experience in banking, transformation, modeling, risk, strategy, banking products, valuation, and operational due diligence.