Pub. 11 2016-2017 Issue 3

www.nebankers.org 14 Extraordinary Service for Extraordinary Members. not SEC filers 8 , would be fiscal years beginning after Dec. 15, 2020, including interim periods. For all other enti- ties, the new guidance would be effective for fiscal years beginning after Dec. 15, 2020, and for interim financial statements for fiscal years beginning after Dec. 15, 2021. Regulators Speak On June 17, 2016 (the day after the release of the final CECL), regulators issued a joint statement on new ac- counting standards (the Guidance) confirming that CECL applies to all banks, thrifts, and their holding companies, regardless of size, and involves a sea change in the method of establishing reserves, accounting, and examination requirements. 9 The Guidance offers regulators’ view on measurement methods, use of vendors, portfolio segmen- tation, and data, as well as qualitative adjustments and systematic allowance processes. Preparing now, rather than later, is the mantra of the regulators. According to the Guidance, discussions with the bank’s board, industry peers, external auditors, and regula- tors should commence now on the best way to implement the new rules “in a manner appropriate to the institutions’ size and the nature, scope, and risk of their lending and debt securities investment activities.” 10 The Guidance indi- cates that the planning process should necessarily include discussions on data needs (which may require additional collection), information technology, ALLL methods to be used, regulators’ expectations and planning for any poten- tial impact of CECL on capital “during the transition period leading up to the effective date as well as after its adoption.” More regulatory guidance is expected 11 , but for now the final CECL standard and the Guidance provide enough for banks to get started. Challenges, Preparation & Some Urgency Some challenges are naturally a part of any change and can be addressed through an adequate time period for transition to the new standard, through industry-based discussions that focus on comparability and consistency of practice, and through appropriate educational efforts for all parties involved. The immediate CECL challenge for banks is the operational impact. New systems and processes to track loan performance may need to be purchased or developed. While banking regulators insist the sophistication of a bank’s CECL processes should be consistent with the sophistication of its operations, operational challenges will, nevertheless, remain both in implementation and on an ongoing basis. Given that implementation of CECL is years away, com- placency risk is real. Panic is not necessary, but some urgency and a plan is. Bank management and boards need to take appropriate steps now to become familiar with the impact of CECL on their bank and to discuss the impact internally as well as with their auditors, accountants, legal counsel, and regulators. The Guidance encourages banks to start planning and preparing for their transition to CECL by: • Becoming familiar with the new CECL standard. • Discussing with the board of directors, industry peers, auditors, and supervisory agencies how best to imple- ment CECL in amanner appropriate to the banks’ size and the nature, scope, and risk of their lending and debt securities investment activities. • Reviewing existing allowance and credit risk man- agement practices to identify processes that can be leveraged when applying CECL. • Identifying data needs and necessary system changes to implement CECL consistent with its requirements, the allowance estimation method or methods to be used, and supervisory expectations. Given that implementation of CECL is years away, complacency risk is real. Panic is not necessary, but some urgency and a plan is. Bank manage- ment and boards need to take appropriate steps now to become familiar with the impact of CECL on their bank and to discuss the impact internally as well as with their auditors, accountants, legal counsel, and regulators.  Counselor’s Corner — continued from page 13