Banks already engaged in the CECL implementation process know that it poses significant compliance and operational challenges to the allowance for loan losses calculation – the largest and most critical estimate for banks. But there’s another side to this coin. CECL also is a unique and compelling opportunity for banks to build the capacity to gather and use data to scale, create new revenue streams, and compete more successfully in a multi-channel marketplace.
Data has become the cornerstone of a strong bank. As the industry has become increasingly digital and global, community banks have lost their hold as the center of personalized, long-lasting relationships. Customers come seeking particular solutions and services, at fair costs, delivered in a proactively personal way. Chances are, they can take care of all of their day-to-day banking tasks via mobile or online platforms faster and easier than they can manage them in a branch. And not bound by geography, they are as likely to choose a bank across the country as they are to stay with the one located across the street.
To compete and scale in this multi-channel banking economy, banks need data. Big banks and native financial technology (fintech) companies know this already.
Consider this. A July 2016 SourceMedia survey of financial institutions revealed that close to 70% of CIOs planned to increase their technology spending in 2017. Compliance was a leading earmark – with 55% of respondents saying they planned to put focus and money into strengthening their business specific to regulatory demands like CECL. What is perhaps more telling about the state of the banking industry is that 40% said they would put more spending into data analytics.
Here’s where we see the nexus of the CECL compliance burden and opportunity. CECL, like other regulatory rules and standards, is a required expenditure. With the right resources and a strategic vision toward what is possible, however, this compliance burden can turn into an investment that generates a return for your institution. And we have seen already that the advantages go to those banks equipped to identify, gather, retain, and engage data.
Adjacent Benefits of Data Collection
Make no mistake, CECL is forcing banking institutions of all sizes to prioritize how they structure and document intelligence related to their customers, lending products, and credit quality. The multi-year, multi-step process offers a host of measurable returns, including:
- See the relationships between your customers, products, and portfolio details
- Compete in a broadening marketplace being reshaped by digital platforms
- Take a predictive point of view of your risk concentration and industry trends
- Strengthen the accountability and effectiveness of incentive compensation plans
- Evaluate M&A decisions to see the risk and synergy in a possible acquisition
By putting in place a framework to manipulate relevant data from across a varied customer base, you can improve your capacity to see and understand new, useful correlations between needs, risks, and opportunities. As those associations grow and solidify, you will be increasingly able to prepare and support your loan loss model(s), be better able to identify risk and opportunity and be more agile with necessary adjustments.
You may be early in the implementation process. It may seem like your bank has a minimal amount of data to manage. Or justifying putting funds toward data storage and analysis may seem nearly impossible. But keep in mind that the longer you collect data, the more useful it becomes for assessing, predicting, and determining the right steps for your clients and your bank.
Of course, you have the option to focus entirely on satisfying regulators and auditors. But by thinking beyond compliance and starting now rather than waiting until your implementation deadline is in sight, you will be giving your bank the history, evidence, and correlations needed to make agile, confident, competitive decisions going forward.
The HORNE Financial Institutions team has put together a host of free resources to help you structure and engage a manageable and reliable process for CECL implementation. Download the Turn Compliance Into Opportunity eBook for step-by-step explanations and manageable activities your bank should take on the road to your CECL deadline.
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