Copyright 2019 by Financial Accounting Foundation, Norwalk CT. For non-commercial, educational/academic purposes only. Roadmap to the Future: Fact vs Fiction (On CECL, SOFR & Other FASB Standards) Hal Schroeder FASB Member September 11, 2019 Investor Briefing Barclays Global Financial Services Conference The views expressed in this presentation are those of the presenter. Official positions of the FASB are reached only after extensive due process and deliberations.
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Copyright 2019 by Financial Accounting Foundation, Norwalk CT. For non-commercial, educational/academic purposes only.
Roadmap to the Future:Fact vs Fiction(On CECL, SOFR & Other FASB Standards)
Hal Schroeder
FASB Member
September 11, 2019
Investor Briefing
Barclays Global Financial Services Conference
The views expressed in this presentation are those of the presenter. Official positions
of the FASB are reached only after extensive due process and deliberations.
Copyright 2019 by Financial Accounting Foundation, Norwalk CT. For non-commercial, educational/academic purposes only.
2
Recent . . . Stop & Study?
Copyright 2019 by Financial Accounting Foundation, Norwalk CT. For non-commercial, educational/academic purposes only.
3
Recent . . . Effective Dates
Still
2020
Now 2023
(?)
Copyright 2019 by Financial Accounting Foundation, Norwalk CT. For non-commercial, educational/academic purposes only.
Price-to-Book Non-financials
Recent . . . Investors Estimate, Again?
4
Price-to-Book Financials
Price-to-Book Difference
Devaluationof US
commercial banks
begins mid-year 2006
Year
Before
Financial
Crisis
2004 to 2006
Significant Increase in Credit Risk
Copyright 2019 by Financial Accounting Foundation, Norwalk CT. For non-commercial, educational/academic purposes only.
❑ Better Data
✓ Quality and Quantity
• Consistency for multiple uses
• Technology improvements help
❑ Better Internal Controls
✓ Consistency over time
✓ Compliance with Sarbanes Oxley
❑ Better Estimation Processes
✓ Have been improving over time
• Improvements expected to continue
• Technology improvements help
❑ Better Internal Communication /
Coordination
✓ Between modelers, financial reporting, risk
managers, treasury, senior management
5
Recent . . . Benefits Justify Costs?W
hat
we’r
e h
eari
ng
. .
.
❑ Better Risk
Management
❑ Better Pricing
❑ Better Capital
Allocation
❑ Better Credit
Decisions
Resu
ltin
g i
n .
. .
❑ Clean up data
❑ Time to develop
better internal
controls &
estimation
processesC
osts
. .
.
Taking a Business vs Compliance Approach?
Copyright 2019 by Financial Accounting Foundation, Norwalk CT. For non-commercial, educational/academic purposes only.
“[Bank’s CFO] says CECL implementation showed him the gaps and
limitations within [its] analytics”
6
Recent . . . Benefits Justify Costs?W
hat
we’r
e h
eari
ng
. .
.
“[CFOs] believe there are ways they
can leverage their respective CECL
processes to better serve
customers and ultimately reward
shareholders. Those benefits range
from better data to stronger controls
to potentially improved profitability.”
Resu
ltin
g i
n .
. .
“Many banks have mounds of
historical loss information that could
be useful but will require scrubbing,
vetting and backfilling.”
Co
sts
. .
.
Taking a Business vs Compliance Approach?
“Executives are rightly concerned about the time and expenses . . . But CECL
implementation allows banks an unusual opportunity to make significant
improvements to their data, internal controls, analytics and modeling.”
“many community banks have adequate systems in place but . . . the
programs and their data are siloed from each other.”
“these bankers take the approach that, ‘If we’re going to do it, we’re going to fix
this issue that we’ve been dealing with for years through workarounds. We’re
going to do this right.’”
Source: How CECL Can Make Your Bank Better
By: Kiah Lau Haslett, managing editor for Bank Director, July 17, 2019
“A lifetime allowance hinges on lifetime loss information; using their own data
can help a bank save on expenses and potentially provide a more accurate
figure, compared to buying the data externally.”
“[CFO] expects that efficiency
gains will free up credit and finance
employees for other responsibilities.”
“A more controlled, automated process could also strengthen internal controls
and a bank’s governance process”
“[CFO says bank will] do a deeper
dive into our various asset
categories . . . help us shape
decisions about what type of
lending we want to do”
“When employees see the CECL taskforce—the chief credit officer, the CFO
and the chief risk officer attending all these meetings [sets] the tone at the top for
the rest [of the employees] to say, ‘Okay, this really is something that we need
to pay close attention to’ [CFO] says.”
Copyright 2019 by Financial Accounting Foundation, Norwalk CT. For non-commercial, educational/academic purposes only.