The CECL Handbook: A Practitioner’s Guide
First published:
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Closing thoughts
Laurent Birade, Masha Muzyka, Yashan Wang and Jing Zhang
Closing thoughts
Introduction
An overview of CECL: setting the context
Outlining the most impactful assumptions and challenges under CECL: an auditor’s view
Outlining the most impactful assumptions and challenges under CECL: a banker’s view
A banking industry perspective on key CECL decisions
Challenges and solutions for wholesale portfolios
Challenges and solutions for retail mortgage portfolios
Challenges and solutions for retail credit card portfolios
Challenges and solutions for student loans
Challenges and solutions for securities portfolios
The evolution of purchased loan accounting: from FAS 91 to the CECL transition
Challenges and solutions for qualitative allowance
Challenges and solutions: an auditor’s point of view
Early view of CECL integration into stress testing: practical approaches
Too many cooks in the kitchen: mastering the art of managing CECL volatility
Beyond CECL: rethinking bank transformation
Data collision: efficient lending under CECL
Cutting through the hype: how CECL is impacting investor views of procyclicality, credit analysis and M&A
Concentration risk: the CECL magnifying glass
Closing thoughts
IT WAS THE BEST OF TIMES, IT WAS THE WORST OF TIMES
It is not an easy task to describe the timing when CECL went live. Under a familiar set of benign economic conditions in January 2020, financial institutions were generally ready to prepare an estimate of losses based on the new accounting standard. Forward-looking forecasts in January had values consistent with the then historical norm, with upside and downside scenarios not a radical departure from the baseline view. However, by the end of the first quarter the economic environment and its prospect could not have been more different and unpredictable due to the COVID-19 outbreak. What transpired during the rest of 2020 was astoundingly unprecedented.
The human toll exacted by one of the worst pandemics in modern history has been staggeringly sad and somber, with more than 100 million people infected and over two million lives lost worldwide at the time of writing. The economic fallout has been abrupt and extreme, starting with a sudden stop of economic activities in many sectors, followed by an uneven reopening and recovery since, resulting in the highest unemployment rate and the steepest drop in GDP since World War II.
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