The requirements of CECL are new to many institutions and to vendors specializing in the outgoing ALLL process. RiskSpan — in addition to ALLL work — has been modeling the market value of credit products for traders and investors for years. These valuations incorporate the same life-of-loan concepts that CECL requires and demonstrate our market-tested expertise.
RiskSpan can help.
An End-to-End Solution
- User-friendly interface for data and assumption input
- Models for many asset classes
- Flexibility to customize models to your circumstances and level of complexity
- Line utilization estimates and loan seasoning effects
- Control dials to run scenarios
- Sound processes and controlled environments
- Hosted solutions that are secure and cost-effective
The elements of CECL are RiskSpan’s defining capabilities:
- Lifetime cash flows and cumulative default rates
- Econometric modeling
- Long-range prepayment assumptions
- Obtaining defensible macroeconomic assumptions (including local forecasts)
- Augmenting internal data to create large, representative datasets spanning a full economic cycle; such data facilitate stable estimates
Optimizing the Impact
The new standard allows multiple approaches, but not all are equally beneficial or sound.
- Traditional ALLL vendors are selling easy solutions that “implicitly” (i.e., partially) reflect the time value of money. These approaches overstate your loss figure relative to approaches that explicitly (fully) discount future losses. Discounting cash flows does not have to be difficult; it’s certainly nothing to avoid at the cost of inflating losses.
- Pool-level averages and simplistic solutions sacrifice accuracy. Accuracy is key to avoiding unnecessary capital buffers. Don't cut corners when it comes to your balance sheet.
A comprehensive CECL program entails the range of expertise that RiskSpan brings together: finance and accounting, data management, credit risk, and model risk. Not all banks need to outsource all CECL-related tasks, but the best partner will understand how these different functions come together to satisfy CECL. Modeling assumptions, too, must agree across departments.