Some, including industry representatives and members of Congress, feel that the new CECL standard should not apply to smaller banks and credit unions. They believe the compliance burden is much greater than the benefits that will accrue from the change in accounting method.

The change to reserve methodologies is significant. Basically the change is to go from reserving for incurred losses (based largely on delinquency or specifically identified risks) to an estimate of all risk in a portfolio necessitates a big change in approach. Determining and quantifying this risk requires very different techniques. It also requires that each lender collects and analyzes data from its portfolio from which to form the basis for the reserve estimate.

Collecting the data will take time and resources to compile. It also may mean that new resources are required to structure the data in a way to support CECL and other analyses. Performing the CECL modeling may require a unique skill set not currently present. Taken together this will add costs to each lender. They may adopt tools from 3rd parties because they are convenient. Doing so may limit the potential value to be gained from the analysis.

It's easy to focus on CECL compliance costs. But it's more important to look at the potential benefits.

First and foremost is the ability to avoid future credit losses. Analyzing data with tools such as CECLNow's drill down tool will support digging into the source of losses. The insights you gain will identify high risk segments that should be avoided going forward. For example, if you knew that subprime mortgages had loss rates 5-10 times higher than your prime customers would you have continued to lend to this segment? The potential savings from avoiding just one account write-off will go a long ways towards recouping any CECL compliance costs.

Second, identifying low risk segments highlights opportunities to book more low risk accounts. Your approval rates may be low for some of these segments. Once you determine why these customers were declined (e.g., debt burden or income) you can drill down further to confirm that the segment is indeed attractive.

Third, comparing your performance to your peers at a detailed level with CECLNow's benchmarking comparison can identify more opportunities. These may be at the margin of where you do business today. Finding these segments can deliver real value to your customers while boosting your revenues and overall performance.

Obviously a solution should meet the following criteria:

This is the solution we are working to provide -- one that will deliver much greater value to your organization at a multiple of 3, 5 or 10 times the cost. To learn more contact us by clicking on the "Let's Go!" button below. We look forward to working with you!