Risk Management & Analytics: Capitalizing on CECL for a Strategic Competitive Advantage

Capitalizing on CECL for a Strategic Competitive Advantage

What is your strategy for implementing CECL? That’s a question an increasing number of financial institutions are being forced to ask and answer. No longer just impacting accounting and finance, the tentacles of FASB’s CECL standard have made their way to organizations’ model risk, credit risk and information technology (IT) groups. If CECL is touching various aspects of an organization, is it feasible for financial institutions to view it myopically, as an accounting issue alone?

Today Situs  released its white paper “Capitalizing on CECL for a Strategic Competitive Advantage,” which explores:

• The skills required to successfully address CECL;
• How organizations must evolve their risk framework to meet the new standard;
• Why a centralized CECL committee will foster greater alignment;
• Specific areas where cross-functional alignment is required and makes sense.

While some organizations are trying to limit CECL’s influence, others are embracing CECL and capitalizing on it to drive a strategic competitive advantage.

What is your strategy?

To learn more, download the white paper here.

Uneasy Transition: Banks Prepare for Libor’s Demise

It will be another three years before the London interbank offered rate fades into history and is replaced by a new benchmark rate, but bankers are already expressing frustration with what promises to be an arduous transition.

Libor, the rate that banks charge each other to borrow money, is slated to go by the wayside in 2021 and taking its place will be something called the Secured overnight financing rate, or SOFR.

An industry committee overseen by the Federal Reserve that selected SOFR last summer did so with the derivatives market — by far the largest sector tied to Libor — in mind, but many industry observers are concerned that it could cause headaches for banks that primarily focus on traditional lending.

That’s because SOFR is based on overnight repurchase agreements, so it doesn’t reflect longer-term credit risk. Libor, by contrast, is the rate reflects what banks pay to borrow from one another, so it always takes credit risk into account. The result is that the rates, at least right now, vary widely, and if that’s the case when SOFR takes effect in three years, banks could find themselves locked into loans that don’t match up with benchmark rates.

Read more: American Banker

How Credit Unions Can Better Navigate Changes in Accounting Standards

To say regulations around accounting standards are changing is an understatement, and with that in mind, Tasha Kostick, an audit partner for RSM US LLP based in San Francisco, kicked off a breakout session at the recent CUNA CFO Council conference with an overview of accounting rules relating to recognition of financial instruments.

These rules were issued by the Financial Accounting Standards Board in January 2016. Although the effective dates are for fiscal years beginning after Dec. 15, 2018, and Dec. 31, 2019 for calendar year ends, some public companies began adopting for Q1 2018. Kostick said this will allow CUs to see some examples.

Among the impacts will be how CUs account for equity securities, changes to liabilities accounted for under the fair value option, and presentation and disclosure requirements.

Read more: CU Journal

Banking Agency Warns of  ‘Lender Complacency’ in Commercial Underwriting

Competitive pressures from banks and nonbanks are contributing to easing in underwriting, increasing the risk that sound pricing structures and practices may be compromised, according to a new report from the Office of the Comptroller of the Currency (OCC).

In its Semiannual Risk Perspective for Spring 2018, the division of the Treasury Department tasked with chartering and supervising national banks and federal savings associations noted that strong competition for quality loans has led to evidence of eased underwriting, and that the “accommodating credit environment… warrants a continued focus on monitoring credit risk and lender complacency.”

“The worst loans are often made in the best of times,” Comptroller of the Currency Joseph Otting warned last week.

Read more: ABL Advisor

Click here to subscribe to Situs Newswatch.

Thank you for choosing the Situs Newswatch. If you want to see your company here or have an idea for coverage, please respond to this email or email inquiries@situs.com for more information.