OCCchief deputy accountant Sydney Menefee outlined what she called CECL-relatedmyths at the Commerce Street Capital bank conference in Dallas on April 28, aday after the Financial Accounting Standards Board to delay the implementation of therule.
Menefeesaid that the OCC believes the CECL change is "scaleable"and the new standard will not require a large, complicated model.
Also,she addressed the idea that regulators will require increases in allowances."That is absolutely not true," she said. "We do expect allowancelevels to increase, it's just math."
Menefee refuted suggestions that FASBdid not work with stakeholders to develop CECL. She said that the boardcommunicated with the OCC to understand the current model in preparation forthe change. She also cited the board's outreach with more than 200 users offinancial statements, 15 workshops, eight public roundtables, 25 field workexercises and community bank roundtable discussion.
Shealso said the ideathat banks must create an accurate forecast for the full life of a loan was amisconception. Using a 30-year mortgage as an example, she said that"nobody expects you to be able to forecast out 30 years."
"Ido think you have an idea, though, on what you think you might lose when youunderwrite a 30-year mortgage," Menefee added. "There is a lot ofinformation that you can revert back to."
Inaddition, she said, "I highly recommend that you develop cross-functionalteams in your organizations to take a look at this." She acknowledged thefact that a cross-functional team may sound expensive, but that the detrimentaleffect of not establishing this sort of group will ultimately outweigh theinitial cost.