Following the most recent financial crisis, the Financial Accounting Standards Board (FASB) issued new guidance that will significantly alter our approach for the estimation of the allowance for loan losses.  This new allowance methodology is commonly referred to as the Current Expected Credit Loss (CECL) model.  CECL arguably represents the most significant change to generally accepted accounting principles that impact credit unions during the past two decades.  CECL will require allowance reserves to be established for estimated “life of loan” losses instead of the current practice of reserving for estimated losses considered probable over the next operating cycle. 

While the credit union industry does have a few years before CECL will be effective, given the amount of time and effort that will be required to prepare for the implementation of CECL, it is highly recommended that you begin considering your approach without delay.  This session is intended to provide you with an informed place to begin the process of implementing CECL, as well as recommended next steps, including:

·        Examining the factors that have led to this change in reserve estimate methodology

·        Understanding of the requirements for the new CECL model, and the establishing an implementation committee

·        Consideration for the timeline your credit union will follow for CECL implementation in order to provide sufficient time to test and validate your planned model prior to its effective date

·        Identification and selection of the modelling technique(s) that your credit union will utilize in order to forecast life of loan losses

·        Potentially identifying some necessary enhancements to your core system or data archiving practices, so that you may begin capturing the necessary granular, loan-level data

·        Discussion of the implications that CECL may pose on your credit union for capital planning purposes