R&C: Could you provide an overview of how extensive a challenge the new current expected credit loss (CECL) model is for the US banking industry?

Voigt: CECL is really a revolutionary change, because it impacts so many areas, both analytically and strategically. On the estimation side, you have the data and modelling demands of lifetime loss forecasting and the increased expectations around disclosure. While all of this adds complexity to the production workflow, you will need to maintain your regular production schedules while ensuring all the controls required for financial reporting remain in place. Then there are the business challenges around how to manage the balance sheet under the new rules as they will likely lead to both higher levels, and greater volatility, of reserves. This requires an informed analysis, which is dependent on having a process in place that can produce estimates in short order. Though 2020 seems a long way off, it really is quite a challenge to have all of this in place and tested.

Jan-Mar 2018 Issue