Lessons Learned on CECL for Community Banks

Community banks and credit unions are presently working towards an implementation deadline of January 1 2023. This article discusses a few of the lessons learned so far in order to help financial institutions with critical issues in the implementation of the new standard: (i) Will CECL make our reserves more procyclical than under the incurred loss model (ILM)? (ii) Does the loss estimation method matter? Since the WARM method is simple, standard-compliant and similar to how losses have been estimated under ILM, is its adoption a no-brainer for a smooth transition?