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How to Estimate the Impact of CECL on ALLL

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Over the past several years, I’ve spoken to a number of credit union leaders who have a basic question.What will the impact of CECL be on my credit union’s ALLL?Before implementing a credit union on CUBI.Pro’s Analytics CECL calculator, I will ask the client what they expect their CECL forecast will be.The responses range from accurate to highly inaccurate.I suspect those that are inaccurate are the result of a hopeful outlook and a lack of awareness of what FASB’s new rules are meant to accomplish.The challenge will be, as more credit unions begin to implement CECL methodologies, gaining acceptance of the resulting forecast if the expected forecast is skewed.This article is meant to demonstrate how a credit union can arrive at a reasonable estimation of what its forecast should be so that they are better able to evaluate the effectiveness and accuracy of forecast calculators, whether developed internally or externally.
The first thing to understand about forecasting loan loss allowa…