I’ve had several conversations with CECL validation clients over the past few months about model back-testing. Institutions often bring it up because an examiner or auditor asked about it, and I always try to shift the focus to why it matters beyond just checking a regulatory box, and how to build a practical approach that actually adds value. For a while, CECL back-testing didn’t feel all that relevant because losses were so low. But as certain portfolios start to show a lit

The New York Fed (they are on a great roll lately with their research!) just released a really interesting piece called “Economic Capital: A Better Measure of Bank Failure?” ( https://lnkd.in/dCNeSKWf ) and I think it speaks to something many of us in risk management have been talking about for years. The researchers built a solvency metric called Economic Capital (EC) which is basically the present value of a bank’s assets minus the present value of its liabilities and opera

As most banks and credit unions work to calculate and finalize their Q2 2025 CECL reserves, KPMG released their Q2 CECL Pulse Check survey ( https://shorturl.at/FJaBi ) and I wanted to share some takeaways. They surveyed 23 banks and 4 finance firms and the results were not surprising. A few things that stood out: - Forecasting remains a big challenge as 88% cited economic outlooks (especially government-driven ones) as the toughest part of ACL estimation. - Economic uncertai

The FDIC published its quarterly banking profile for Q1 2025 yesterday. While the report looks "solid" on the surface, once you dive in a bit, the data is not as encouraging.. The banking industry turned in a “good quarter” by the numbers: Earnings up ROA at 1.16% Deposit growth continues Only one bank failed …but if you’ve spent time around balance sheets and risk models, you know that headlines can be deceiving. Earnings: up, but ..... Q1’s profit boost came mostly from non

The OCC just released its Spring 2025 Semiannual Risk Perspective and, for community banks, it mostly backed up what we already know. 🏢...

For many financial institutions, CECL implementation was a heavy lift - one that checked a regulatory compliance box and moved on. But the most effective institutions see CECL as more than an accounting requirement. They see it as a strategic tool. And the best way to ensure that tool is working as intended? A thorough, independent CECL model validation. In this post, we’ll explore how a robust CECL validation adds value far beyond compliance, enhancing reserve precision, rep