A 15-Month CECL Playbook for 2023 Banks

By Adam Mustafa, Invictus Group CEO

Most community banks have barely gotten started down the CECL road as of mid-September 2021. The primary reason is simple. The individuals responsible for implementing CECL at your bank have bigger fires to fight right now. Whether it’s responding to regulatory requests, dealing with credit reviews, working on other mission critical projects such as a core conversion or fintech partnership, executing quarter end closes, or just your run of the mill ad-hoc requests, the bottom line is that these are today’s problems, and CECL is tomorrow’s problem.

At the same time, these individuals for the most part recognize that they don’t want to wait until the night before the due date to start their homework either. I want to make a public service announcement to these individuals at your bank: While time is running low, it is far from running out.

That being said, it is critical for you to recognize that the simple purchase of a software model is not the same thing as executing a successful implementation. Yes, choosing the right calculator is important, but frankly, most of the work begins after that. You still have to determine which methods to use, what assumptions to make, conduct parallel testing, work through the kinks, and last but not least, document everything your model is doing and the reasoning behind it.

We at Invictus have completed successful CECL implementations, and trust me, we learned plenty along the way. As a result, we have gotten many “reps” that have allowed us to fine-tune our playbook for a successful implementation.  I have taken the liberty of taking a recent playbook we developed for a client that is deploying the PD/LGD method earlier this month and have redacted it to mask the name of the bank. We are making this playbook available to the public so you can use it as a loose guide to develop your own.

Please note that this playbook includes action items for both Invictus and the client. Should you be a member of a community bank responsible for implementing CECL on your own, you will have to also take on the responsibilities assigned to Invictus.