Alternative economic scenarios are invaluable for quantifying and managing forecast risk. In this article, we define these constant severity scenarios and the models used to estimate their probabilities.
Starting in 2020, the Current Expected Credit Loss (CECL) accounting standard will require financial institutions to reserve for estimated lifetime losses on loans and leases as soon as they are originated. This presentation will provide analytical insight and practical recommendations to help lenders strategize and effectively prepare for the new rule.
How to Leverage R&S Economic Forecasts in CECL? In this presentation we demonstrate how to incorporate scenarios effectively.
Top-down approach for small institutions, small and/or young portfolios that produces scenario-conditioned lifetime net losses at different evaluation dates.
Mean reversion is an important facet of the upcoming Current Expected Credit Loss accounting standard. Under CECL, lenders will need to estimate, and set aside an allowance for, the expected lifetime loss for each loan they book at the time of origination.
One of the key differentiators between the upcoming Current Expected Credit Loss and the current incurred loss accounting process is the formal incorporation of forward-looking forecast information.