CECL Credit Risk Solutions

Financial institutions of all shapes and sizes are transforming their loss reserve approach and models to adhere to the Financial Accounting Standards Board’s (FASB) Current Expected Credit Loss (CECL) impairment standard (ASU 2016-13, Topic 326). The new guidelines replace the current “incurred loss model” with a loss model that considers historical events, current conditions, as well as reasonable and supportable forecasts. Moreover, FASB guidelines now require financial institutions to disclose “credit-quality indicators” and further segment those indicators by year of origination (or vintage).

The change represents a significant shift in how financial services institutions estimate loss and it requires significant adjustments to data, resources, people, and processes. For financial institutions who require the resources and expertise to accurately model CECL and address accounting and best practice requirements, MountainView/Situs delivers comprehensive CECL Credit Risk Solutions that optimize data, improve modeling and analysis, and maximize model performance. Our CECL Credit Risk Solutions combine advanced data remediation capabilities with deep modeling and validation expertise to help institutions meet critical CECL implementation timelines and address CECL challenges.

Data Optimization

To effectively model for CECL, financial institutions will require more data than what has traditionally been used to calculate credit losses. Moreover, many institutions often have data that is not standardized, centralized, or reviewed for integrity. MountainView/Situs’ CECL Credit Risk Solutions includes comprehensive data remediation and optimization. We audit a financial institution’s available data and identify areas where we can extract and validate key data elements from imaged files, boosting CECL readiness. Additionally, we remediate data and implement QC practices to improve data accuracy. By focusing on improving and optimizing your data in your data warehouse, we enable financial institutions to standardize CECL modeling methodologies and leverage data for multiple purposes beyond loss estimation including Business as Usual (BAU), Asset and Liability Management (ALM), stress testing, capital planning, and more.

CECL Modeling and Analytics

FASB does not prescribe the use of specific estimation methods so financial institutions are responsible for applying, testing, and identifying the most appropriate methodologies based on their unique data and business requirements. MountainView provides your institution with a customized model solution unique to your institution’s data and model governance needs including the documentation and training necessary to own and understand the model. All models are built to be compliant with industry best practices.

We offer solutions to:

  • Build customized CECL models the institution owns utilizing a myriad of modeling techniques using institution data and incorporating macro data
  • Improve ALM, Credit, and Stress Testing model efficiencies, simplifying reporting, and minimizing model inventory and costs by eliminating model redundancies
  • Prepare detailed model documentation and training to meet best practice model risk requirements
  • Provide staff augmentation for model development to quickly ramp up modeling capabilities

Model Process Consulting

While modeling for CECL presents its own set of challenges, financial institutions must also review processes to ensure that an infrastructure supports model implementation and ongoing model maintenance. Whether it is your custom build or a third party model, MountainView/Situs supports model and process implementation.

We offer solutions to:

  • Evaluate and document existing Allowance for Loan and Lease Losses (ALLL) and charge-off policies
  • Assess policies and processes for comprehensiveness, adequacy of documentation, and consistency across an institution’s loan portfolios
  • Support model implementations into various dependent BAU processes such as ALM and stress testing
  • Provide guidance and consulting to develop model risk governance, policies, processes, and procedures

CECL Model Validations

To ensure models adhere to supervisory guidance pertaining to model risk management, MountainView/Situs provides an independent validation of CECL models. Our CECL model validation identifies limitations of a model or model framework used to forecast credit losses, balances, income, expense, capital and liquidity including custom-build, custom-configured, or third-party developed. Read more about CECL Model Validations here.