Conversations about the Federal Accounting Standards Board's recent proposal to replace its current Allowance for Loan and Lease Loss model with one that includes "expected credit loss" measurement actually began in 2008. 

In the intervening years, many credit unions found their credit loss forecasts to be inaccurate and saw loan loss reserves playing "catch-up" as actual loan loss experience tended to be a lagging metric.  Moreover, when the tides turned on delinquencies and losses, the historical loan loss experience models suggested that credit unions continue to add to their reserves when in fact the reserves where already more than sufficient.

Irrespective of the final version of the FASB proposal that eventually comes to pass, the current conversation focused on "expected credit loss" provides a great opportunity for credit unions to begin the process of re-evaluating their loan loss reserve methodologies.   

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Specific in this re-evaluation should be the inclusion of techniques and technologies that provide better forward focused loss forecast tools.  To provide some perspective, a brief review of the techniques and technologies currently in use is warranted.