Effective #Data Governance Key for Community FIs

As implementation of the new CECL model gets closer, community FIs should determine the type of data they will need to make more accurate lifetime loss estimates.

Calculating potential credit loss may have just gotten easier for community financial institutions (FIs). Recently, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) finalized a new credit loss model for financial assets. This model will allow for more timely recognition of expected credit losses.

Although it’s been finalized, the new Current Expected Credit Loss (CECL) model won’t take effect until 2019. The new model addresses the need for a more precise measurement of life of loan loss based on loan-level data. In order to achieve this, FIs will need to mine quality, secure, easily accessible data, as well as make the most of any currently stored data.

Recent statistics from Sageworks suggest FIs’ CECL preparations and data adequacies may be lacking. When CECL webinar workshop attendees were surveyed about their current preparations for CECL, only 31 percent reported storing data adequate to achieving loan-level detail. When polled on data adequacy and archives, fewer than half (30 percent) believed their data records were satisfactory.

However, there are measures community FIs can take to change these statistics:

  • Update data analytics efforts — In order to generate more progressive loan loss projections, FIs may need to modify existing loss estimation models.
  • Review current data and IT systems — If these areas need updating, FIs should consider improving data warehouses and IT systems accordingly.