Panel Discussions: CECL Preparation and Unexpected Consequences

Muneera CarrMuneera Carr | EVP, Controller and Chief Accounting Officer | Comerica Bank

The MST 2016 National Conference will offer a vast array of perspectives on CECL; Muneera Carr’s will be uniquely that of a preparer. In her role as Controller and Chief Accountant for the nation’s 30th largest bank, she and her team oversee the allowance. And with a $50 billion loan portfolio as her concern, she has followed the evolution of CECL closely over nearly a decade of development. Through her involvement on the ABA’s accounting committee, she can provide perspectives on the current state of readiness and the effort it will take to implement the new standard.

Ms. Carr will oversee an interactive panel session. She and banker panelists will look at CECL from a practical standpoint, addressing what bankers should be doing to prepare for CECL. Panelists will share what they are doing to prepare, discuss relevant considerations and examine some of what are certain to be unexpected consequences of CECL. Attendees will be invited to join the discussion with their questions and observations.

Key Takeaways

  • The costs of compliance are going to be borne unproportionately by smaller institutions – it’s always that way with regulations.
  • Regulators will let things develop before they provide regulatory guidance.
  • The problem with data is not breadth but depth, how far back institutions can go.

As the panel of industry experts considered the potential unexpected consequences of CECL, the following thoughts were shared with conference attendees:

  • The Board decided to stick to the current accounting method for TDR. Keep doing what you’re doing currently for TDR.
  • You’re measuring credit losses and there is a difference between that and impairment. So why include securities? The most important measurement for securities is the difference between amortized cost and fair value.
  • TDR and securities are two areas on which the Board might have done something better. The effect on smaller institutions is greater and wasn’t supposed to be
    that way.
  • The costs of compliance are going to be borne unproportionately by smaller institutions – it’s always that way with regulations. A concern is that the regulations will trickle down to the point of requiring the same of smaller institutions as the bigger.
  • ROE will decrease which will make it harder to attract investors.
  • Regulators will let things develop before they provide regulatory guidance.
  • Use peer groups to keep you from going off in the wrong direction.
  • As to the TRG, there is some sense of urgency to come up with issues and questions now while there is a group to answer them.
  • The April TRG document on the FASB website: those pages are what the guidance will be.
  • FASB doesn’t tell you what to do because they think that bank management knows better.
  • The 30-35 percent increase in reserves has been blown out of proportion by the banking media. There is a high probability that a lot of institutions may reduce their allowances. In looking back you’re including the major crisis years, but the future looks better, so it might wind up reducing rather than increasing allowances.
  • In 2005 big banks told FASB they needed to change the ALLL model because they had too much risk and couldn’t reserve for it.
  • The problem with data is not breadth but depth, how far back institutions can go. We’re looking at 10 years of data as necessary as a starting point. Not many banks or credit unions have that depth.
  • Growing financial institutions are doing so by acquisition. They might not have good data, especially from a failed institution.
  • An increase in due diligence will be required for acquisitions. In a PCD model, you will pool loans from acquisitions; keep them as a separate pool.
  • CECL might change loan products offered, including the length of loans.
  • A lot of people believe CECL will have a major positive impact on global banking stability, the message being that we are taking steps to be safer and stronger.
  • CECL is not a ticket to take on more risk. How you run your institution won’t change because of how you account for things. Accounting should reflect what you have, not what you are going to do.

Download the full 2016 National ALLL Conference Digest.