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Leveraging Historical Loss Data for CECL

This paper explores the CECL standard's background, the choices community banks, regional banks, and credit unions face, and some suggested approaches for dealing with these challenges.

June 2019 WebPage Laurent Birade, Dr. Yashan Wang, Warren Xu

Weekly Market Outlook: Borrowing Restraint Likely Despite Lower Interest Rates

According to the Federal Reserve's “Financial Accounts of the United States”, first-quarter 2019's outstanding debt of U.S. nonfinancial corporations advanced by 8.1% year-over-year to a new record high of $9.926 trillion.

June 2019 Pdf John Lonski, Yukyung Choi, Katrina Ell, Brendan Meighan, Steven Shields

The Belt and Road Initiative—Six Years On

Using the Moody's Analytics Global Macroeconomic Model to estimate the potential impact of BRI-related investments on Southeast Asian countries.

June 2019 Pdf Steven Cochrane, Veasna Kong, Brendan Meighan

Weekly Market Outlook: The Fed Cured 1998's Yield Curve Inversion

The implied probability of a fed funds rate cut at the Federal Open Market Committee's July 31 meeting recently soared to 72% mostly in response to Jerome Powell's apparent willingness to heed the recessionary warning of a possibly persistently inverted yield curve.

June 2019 Pdf John Lonski, Yukyung Choi, Katrina Ell, Barbara Teixeira Araujo, Ryan Sweet, Michael Ferlez

Defining Economic Scenarios With Constant Severities

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.

Weekly Market Outlook: Extended Yield Curve Inversion Would Presage Wide Spreads and Many Defaults

Since May 3, or just prior to the latest episode of trade-related stress, the market value of U.S. common stock had plunged by 5.7% as of May 29's close for a paper loss of $1.735 trillion.

May 2019 Pdf John Lonski, Yukyung Choi, Katrina Ell, Faraz Syed, Barbara Teixeira Araujo, Ryan Sweet, Michael Ferlez

Weekly Market Outlook: Business Debt's Mild Rise Differs Drastically from 2002-2007's Mortgage Surge

Fed Chairman Jerome Powell recently addressed the issue of business borrowing. In a May 20 speech, Mr. Powell suggested that, by itself, the new record high ratio of nonfinancial-corporate business debt to GDP is much less of a risk to systemic financial liquidity than was home mortgage debt's record high 100% of disposable personal income from 2007.

May 2019 Pdf John Lonski, Yukyung Choi, Katrina Ell, Barbara Teixeira Araujo, Ryan Sweet, Steven Shields

Weekly Market Outlook: Earnings Slump Would Unmask Dangers of High Leverage

According to the Federal Reserve's “Financial Stability Report” of May 2019, not only has the outstanding debt of nonfinancial businesses outpaced nominal GDP during the past 10 years (or since 2008), but the growth of debt has been skewed toward riskier firms.

May 2019 Pdf John Lonski, Yukyung Choi, Katrina Ell, Barbara Teixeira Araujo, Mark Zandi, Ryan Sweet, Michael Ferlez

Canada Housing Market Outlook: A Needed Pause in Demand

The gradual disinflation in Canada's housing market continues at a steady pace.

May 2019 Pdf Andres Carbacho-Burgos

Reporting and CECL: A Seismic Shift for Accountants

From an accounting standpoint, the changes in how to account for credit-loss reserves within the banking, insurance, and lending industries stemming from the Financial Accounting Standards Board's (FASB) current expected credit losses (CECL) guidance are significant.

May 2019 WebPage Scott Dietz

Trade War Update: Will Trump Push Too Far?

New escalation of the U.S.-China trade war makes a number of scenarios possible, including one in which the global economy suffers recession later this year.

May 2019 Pdf Mark Zandi

Dealing With Fallen Angel Risk

We test the early warning power of the CreditEdge Deterioration Probability (DP) metric for Fallen Angel downgrades.

Podcast: CECL – New Accounting Standard and Its Impact on Community Banks

Moody's Analytics Director Robby Holditch recently visited the Barret School of Banking to discuss the upcoming current expected credit loss (CECL) accounting standard and its ramifications for the community banking space.

May 2019 WebPage

A Damaging State of Flux

The Trump administration has increased tariffs to 25% on around US$200 billion of Chinese goods imports. An important determinant of the impact on the U.S. and global economies will be how Beijing chooses to retaliate.

Weekly Market Outlook: Credit May Again Outshine Equities at Divining Markets' Near-Term Path

During a week of heightened equity market volatility, the corporate credit market was relatively calm. As of May 8's close, the credit market had yet to sense much collateral damage from an intensification of the trade conflict between China and the U.S.

May 2019 Pdf John Lonski, Yukyung Choi, Katrina Ell, Steven Cochrane, Barbara Teixeira Araujo, Ryan Sweet, Steven Shields

Weekly Market Outlook: Not Even the Great Depression Could Push the Baa Default Rate Above 2%

The now positive trend of Baa-industrial credit rating revisions is nearly diametrically opposed to the negative trend of high-yield rating changes.

May 2019 Pdf John Lonski, Yukyung Choi, Katrina Ell, Veasna Kong, Barbara Teixeira Araujo, Ryan Sweet, Brendan Meighan, Steven Shields

Regulatory Data Management: Data Quality and Integrity Concerns for Asian Banks

Banks must invest in a data management system that can be easily updated with new regulatory and commercial realities.

April 2019 WebPage

Weekly Market Outlook: Benign Default Outlook Implies Profits Will Outrun Corporate Debt

A high ratio of corporate debt to GDP is tolerable as long as a material contraction of core pretax profits is avoided. History shows that the ratio of corporate debt to core pretax profits performs better at explaining high-yield defaults than does the ratio of corporate debt to GDP.

April 2019 Pdf John Lonski, Yukyung Choi, Katrina Ell, Barbara Teixeira Araujo, Ryan Sweet, Scott Hoyt, Steven Shields

China Economic Outlook: Defying Gravity

Beijing's easing measures will help temper the economic growth slowdown in 2019.

April 2019 Pdf Moody's Analytics

Japan Economic Outlook: Challenges Ahead

Uncertainty clouds the outlook for 2019, and risks are tilted to the downside.

April 2019 Pdf Faraz Syed

Weekly Market Outlook: Upside Risks to the U.S. Economy

The U.S. economy has weakened in early 2019, fanning concerns that the expansion is running out of steam. However, a number of factors that are contributing to this apparent downshift are temporary.

April 2019 Pdf John Lonski, Katrina Ell, Veasna Kong, Barbara Teixeira Araujo, Brendan Meighan, Ryan Sweet, Michael Ferlez, Andrew Pak, Adam Ozimek

Economic Costs of Closing the U.S.-Mexico Border

Supply chains and cross-border transactions could be damaged.

April 2019 Pdf Alfredo Coutiño

Earnings Volatility, Share Price Performance, and Credit Portfolio Management Under CECL and IFRS 9

This paper studies how earnings volatility induced by credit risk can impact share price performance for financial institutions under CECL and IFRS 9, and quantifies the benefit of an active credit risk management practice.

April 2019 WebPage Dr. Amnon Levy, Xuan Liang, Dr. Pierre Xu

Weekly Market Outlook: Outstandings and Rating Changes Supply Radically Different Default Outlooks

The credit ratings distribution of outstanding U.S. high-yield corporate bond debt and the distribution of high-yield credit rating revisions now deliver conflicting messages regarding the high-yield default rate's likely direction.

April 2019 Pdf John Lonski, Yukyung Choi, Katrina Ell, Barbara Teixeira Araujo, Ryan Sweet, Brendan Meighan, Steven Shields

Perspectivas Económicas América Central 2019

América Central continuará siendo la subregión con mayor crecimiento en el 2019, dada su estrecha relación con el mercado estadounidense y los aún favorables precios de las materias primas.

April 2019 Pdf Alfredo Coutiño

Weekly Market Outlook: High Leverage Offset by Ample Coverage of Net Interest Expense

The faster growth of nonfinancial-corporate debt relative to both nominal GDP and the group's core pretax profits has been offset by the comparatively slow growth of net interest expense.

April 2019 Pdf John Lonski, Yukyung Choi, Katrina Ell, Barbara Teixeira Araujo, Ryan Sweet

Weekly Market Outlook: Subdued Outlooks for Revenues and Profits Portend Lower Interest Rates

Recession fears abound yet the prices of earnings-sensitive securities and industrial commodities have held up reasonably well. Indicators of financial distress have yet to warn of sharply lower share prices and a surge in corporate debt defaults. Apparently markets are confident in the remedial powers of lower interest rates.

March 2019 Pdf John Lonski, Yukyung Choi, Katrina Ell, Faraz Syed, Barbara Teixeira Araujo, Ryan Sweet, Michael Ferlez

A Framework for Disclosing Period-over-Period CECL-Estimate Changes

While many institutions are currently in the throes of implementing the current expected credit loss (CECL) accounting standard, some are thinking ahead and some that are not. CECL will have an unavoidable impact on management disclosures, specifically around explaining period-over-period changes in allowance.

March 2019 WebPage Laurent Birade

Weekly Market Outlook: Fed Will Cut Rates If 10-Year Yield Breaks Under 2.4%

The Treasury bond market was stunned by the drop in the Federal Open Market Committee's “dot chart” projection for year-end 2019 fed funds' midpoint from the 2.875% of December 2018's projection to 2.375% as of March 2019's projection.

March 2019 Pdf John Lonski, Yukyung Choi, Katrina Ell, Barbara Teixeira Araujo, Ryan Sweet, Michael Ferlez

Caught in the Cross Fire: Latin America Navigates Global Trade Risks

We assess the economic consequences for Latin America should the trade truce between the U.S. and China fail to hold.

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