Challenges to Model Validation Under the New CECL Standard

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By
Protiviti

On June 16, 2016, the Federal Accounting Standards Board (FASB) finalized the Current Expected Credit Loss (CECL) standard, which incorporates significant differences from previous standards and is slated to go into effect at the end of 2019 for SEC filers and the end of 2020 for others. Banking organizations that are subject to Supervisory Guidance on Model Risk Management (SR 11-7/OCC 2011-12) are required to validate all models, but many other institutions are likely to follow this guidance as leading industry practice. The differences in the new standard require banks and other lenders to make major changes to their loss reserve models, and in some cases develop new models entirely.

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