CECL Impact Analysis Case Study: Understanding the Potential Impacts from CECL Implementation for a Large U.S. Commercial Bank

 Client’s Challenge


  • The bank’s board of directors recently made a request of the risk management team to conduct a side-by-side assessment between the bank’s current reserving methodology and the current exposure credit loss (CECL) methodology the bank will need to implement in the future
  • The incurred loss approach used at the bank to be GAAP compliant does not incorporate any forward-looking estimates of credit losses as required under the CECL framework, hence the bank was searching for a capability that could be used to compare both reserving approaches against the bank’s loan portfolio

Our Solution


  • Working with the bank’s reserve management team, FBA analytics experts provided guidance on how the Javelin Whole Loan (JWL) Platform could be leveraged to examine impacts on the bank’s Allowance for Loan and Lease Loss Reserves (ALLL) and its provision for loan losses under current GAAP accounting rules as well as CECL
  • FBA provided the bank with guidance on data requirements, structure and other data importing procedures on the bank’s consumer loan level data to ensure easy model execution
  • JWL’s ability to handle both incurred loss estimates as well as its forward-looking capabilities tying key macroeconomic factors to default and prepayment models enabled the bank to conduct a true comparison of both reserving approaches
  • The bank was also able to leverage JWL’s time profile of default methodology to also examine the effects of applying different loss confirmation periods in current reserve analysis



  • The risk team presented the board with a precise quantitative impact assessment of migrating from an incurred loss reserve approach to CECL
  • After gaining comfort with JWL’s analytic flexibility additional ad hoc analyses of potential impacts to the reserve under a range of scenarios were also performed separately by the bank