The countdown to CECL has begun
Future losses will soon be part of the equation for calculating reserves, and there’s much work to be done.
Credit unions are counting down to an accounting sea change.
New current expected credit loss (CECL) standards will take effect at the end of 2021 for all financial institutions. Credit unions, however, have the option to adopt the new standards in 2019.
After the financial crisis of 2008-2009, the Financial Accounting Standards Board approved changes that require institutions to reserve for future losses over the life of a loan rather than at the current incurred loss model.
“The new model turns the loss reserve estimate from something you can predict in the short term into something that’s difficult to predict over the long term,” says Tim Green, executive vice president and chief financial officer at KeyPoint Credit Union ($1.3B, Santa Clara, CA).
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