United States

Impact of CECL and plans for implementation


Executive summary

As one of the most complex new standards the industry has faced, the Financial Accounting Standard Board’s current expected credit loss (CECL) standard changes the accounting treatment for credit losses for most financial assets. Yet many financial institutions are still unfamiliar with the standard and unaware of its potential impact on their loan loss reserves.

RSM US surveyed 229 executives at banks, bank holding companies, savings and loans, and thrifts across the country. The following reflects their perspectives on CECL, its potential impact and their plans for implementation.

Familiarity with CECL

Overall, nearly two-thirds of respondents claim at least some familiarity with CECL. Unfortunately, that means more than a third claim little or no familiarity with the standard. When viewed by size, a plurality of executives (44 percent) from institutions with less than $500 million in assets are only somewhat or not at all familiar with the standard. This may be indicative of a lack of resources to address the standard at these institutions.

How familiar are you with the CECL standard?

(Percentage of participants)

Completely familiar 26%
Familiar 37
Somehwat familiar 27
Not at all familiar 10

Base: 229

Expected effort required for implementation

Anticipating the effort required to implement CECL, most respondents claim it will require either a significant (38 percent) or moderate (47 percent) effort. Not surprisingly, smaller institutions are more likely to gauge the effort required to implement CECL as significant, while larger institutions anticipate moderate effort will be required. Nevertheless, one in five participants indicate that their institutions have not started their initial assessments of what will be required; just over 40 percent have started but not completed their assessments. Despite the anticipation of the major effort required for implementation, the smaller institutions are more likely not to have started their initial assessments.

Initial assessment not started

(Percentage by asset size)

Less than $500 million 29%
$500 million to $1 billion 14
1 billion up to $10 billion 8
$10 billion or more 8

Base: 205

Approach to implementation

Just over one in five respondents indicate that they are not sure (or don’t know) what the impact of CECL will be on their loan loss reserves. Among those familiar with CECL, 81 percent agree strongly (or at least somewhat) that their institution’s current systems provide sufficient historical data to effectively estimate life-of-asset loans and prepayment speeds.

More than half of all bank respondents claimed use of a spreadsheet program such as Microsoft Excel to calculate loan loss reserves. Banks in the middle range of asset categories were most likely to indicate the use of third-party software. Those banks in the smallest and largest asset-size categories claimed the lowest usage of third-party software.

Although the number of survey responses regarding the use of third-party software and systems for loan loss reserve calculations was low, the results suggest a number of considerations behind the decisions. Just under 60 percent of institutions cite the complexity of the standard as the reason for using third-party software. Nearly the same percentage suggests the supplier’s prior experience and minimizing risk as a reason.

Major reasons to use third-party software or systems

(Percentage of respondents; multiple responses allowed)

Complexity of the new CECL standard 58%
Provider’s prior experience in determining loan loss reserves 57
Minimize potential risks of noncompliance with the CECL standard 56
Fit of proposed solution with existing systems/operations  47
Ability to effectively use my institution’s historical loss data 46
Provider’s access to normative data for setting reserves 38

Base: 50


RSM US conducted an online survey among 229 senior executives from banks (177), bank holding companies (30), and savings and loans/thrifts (22). Respondents were invited to participate via email. The questionnaire was RSM-identified and participants were assured their responses to the survey would be treated confidentially and anonymously; results were analyzed and reported only in the aggregate. As an incentive, respondents were promised a summary of the results and a contribution to a charity of the respondent’s choice from a limited number of options.

Importance of reason to use third-party software or system to implement CECL

(Banks, bank holding companies, savings and loans, thrifts)

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