Segmentation Under CECL

Per the Standard, “CECL requires institutions to measure expected credit losses on financial assets carried at amortized cost on a collective or pool basis when similar risk characteristics exist.” Under CECL, pooling strategies currently used by financial institutions are potentially still feasible but may require tweaking. By utilizing current data to prepare proper understanding of where losses reside in a portfolio, not only will management attain more knowledge of their portfolio, but the Allowance calculation will be more accurate.  Financial institutions have considerable flexibility regarding how to segment and further sub-segment its portfolio, there is no “right answer,” so long as the selected segmentation is based upon supportable risk identification, data availability, and is appropriately calibrated to the corresponding models/methodologies being applied. This session will lead an appropriate first steps or best practices to begin your steps to CECL segmentation.