The Decision Maker

Making the World a More Predictable Place: Which CECL Model is Best for your Credit Union?

Posted by Alex Beversdorf on Nov 27, 2018 12:05:00 PM

 

Trouble playing the video above? Click here. from CUbroadcast on Vimeo.

Current Expected Credit Loss, or CECL, is an important upcoming accounting requirement that requires financial institutions to attempt to predict the expected losses on loans and other debt securities over the entire life of the loan. Large retailing banks and credit unions of all sizes can benefit from an accurate CECL model as both entities provide much of the same services to their customers and members, respectively.

The two main metrics you have to consider when choosing the right CECL model should be accuracy and procyclicality. If a loss model lacks accuracy and consistency, what’s the point of spending all that time, money, and effort in a meaningless implementation? A good CECL model will be adequately equipped to better track credit losses. There is a strong correlation between the credit cycle and the economic cycle. Models that account for implied volatility better estimate the timings and severity of economic recessions and manage to do so in a timely manner.

In the webinar, “Which CECL Model Should You Use”, Dr. Joseph Breeden, Chief Scientist and COO, at Deep Future Analytics and Prescient Models LLC, talks about the various types of CECL models. He clarifies the key differences between simple “spreadsheet” models and more advanced statistical models and how they can directly benefit credit unions with improved predictability.

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Topics: CECL, Lending, Video

Descriptive, Prescriptive and Predictive Analytics, Oh My: The CECL Journey

Posted by Mark Portz on Jan 23, 2017 11:06:49 AM

In the third Data Analytics Series BIGcast, The CECL Effect, John Best speaks with Dr. Joseph Breeden of Deep Future Analytics about CECL, data pooling, and predictive analytics.

The Impact of CECL

As Joe Breeden explains in the podcast, CECL stands for Current Expected Credit Loss, and is the new accounting standard for how financial institutions will set loss reserves. Typically, organizations under $10 Billion assets have utilized moving averages to calculate loss reserves, but this model is backward-looking and will not be acceptable for the new regulations. A moving average model will always set your loss reserves too low moving into a recession and too high moving out of the recession.

When discussing how to meet CECL requirements and create a forward-looking model, Breeden states, “There is a lot of flexibility on how you implement it, but there are two things that are pretty much unavoidable”:

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Topics: CECL, Data Analytics, Data Pool, Podcast

Defining and Getting Ready for CECL

Posted by Mark Portz on Jul 7, 2016 11:30:00 AM


Based on a presentation given by Dr. Joseph Breeden, CEO of Prescient Models LLC., at the 3rd Annual Analytics and Financial Innovation Conference (AXFI).

The Financial Accounting Standards Board (FASB) announced the final standard for the Current Expected Credit Loss, or CECL, on June 16, 2016. Thus far, banks and credit unions have only been required to estimate and report potential losses for the next 12 months on loans and leases. This new regulation, however, will require financial institutions to predict and report potential losses for the entire lifetime of a loan.

What it means for your Credit Union or Bank

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Topics: CECL

Financial Landscape Developments: Blockchain’s Impact and FASB’s New CECL Comments

Posted by Austin Wentzlaff on Jun 21, 2016 11:52:37 AM

The financial services industry is being constantly challenged with new regulations and outside threats. Two important developments in the financial world recently that are worth noting are the immense growth in blockchain technology utilization, as well as the impact of the Financial Accounting Standards Board’s (FASB) recent comments on Current Expected Credit Loss (CECL) guidelines. These are both undoubtedly items to keep top-of-mind, as they are impacting institutions from community banks and credit unions to the large banks. 

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Topics: Blockchain, CECL, Big Data

FASB’s New CECL Comments Could be a Worst-of-Both-Worlds Approach

Posted by Joe Breeden (Deep Future Analytics) on Apr 19, 2016 11:30:00 AM

Last week’s comments by the Financial Accounting Standards Board (FASB) about how they will allow the different levels of complexity in credit loss calculations for lenders of different sizes would seem to be a victory for smaller credit unions and community banks.

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Topics: Credit Unions, CECL, Lending

Analytics for CECL: Challenge Creates Opportunity

Posted by Austin Wentzlaff on Jan 28, 2016 11:30:00 AM

“Everything negative - pressure, challenges - is all an opportunity … to rise.” – Kobe Bryant

Getting ahead of the new CECL requirements is a strategic initiative for all credit union executives in 2016. Being compliant will be no easy task, however. The new CECL requirements require life-of-loan loss forecasting capabilities. In most cases, this means the credit union will need to collect data, A LOT OF DATA. Unfortunately for most credit unions, collecting, storing, and analyzing data has not been a priority and most do not have the proper infrastructure in place to do so.

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Topics: Big Data, CECL