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CECL guidebook part 2: Loss rate calculations of the allowance for loan and lease losses

June 14, 2018 White Paper 15 min read
Ryan Abdoo Robert Bondy
Wondering how to move forward with the process of adopting CECL? We believe the next step is putting pen to paper and working with the mechanics of a CECL calculation to fully grasp the data needs of the available approaches.

Photo of five people sitting around a meeting table in discussion.  

With the Financial Instruments – Credit Losses (CECL) accounting standard approaching, the industry has been learning and absorbing the theory. The Financial Accounting Standards Board and the regulatory agencies have indicated complex models are not required, meaning that the complexity of the methodology used should be commensurate with the size and complexity of the institution.

Because we believe Microsoft Excel can be used with the loss rate methodologies, and that most community financial institutions will use one or multiple of the various loss rate methodologies, this guide focuses on the loss rate method.

What’s inside

Inside this guidebook, we walk through different loss rate calculations that are intended to help community financial institutions understand their options and confidently move forward with their next steps for CECL implementation.

  • Input considerations
    • Vintage and “new” loan requirements
    • Troubled debt restructures (TDR)        
  • Applying the loss rate methodology (with examples)
    • Remaining maturity method
    • Snapshot/open pool method                       
    • Static pool method
    • Vintage method               
  • Current conditions and forecast adjustments
    • Selection of lifetime historical loss rate
  • Suggested timeline for implementation 

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