CECL Adoption: What Community Banks Can Do Now to Prepare for Success

"The early bird gets the worm, but the second mouse gets the cheese." In other words, those in the process of starting their current expected credit loss (CECL) adoption can learn from the earlier adopter's experience with CECL adoption, particularly during the model validation process.

The supervisory Guidance on Model Risk Management (SR 11-7/OCC 2011-12) was formally adopted by the Federal Deposit Insurance Corporation (FDIC) in June 2017 to specifically address smaller financial institutions. Many larger institutions have gone through the time-consuming, complex model validation process and learned what both validators and regulators are focused on when it comes to CECL models. The observations below are not a comprehensive list of requirements; however, the offer insights in preparation for the required model validation on the road to CECL adoption.

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