What are the Pros and Cons of Single versus Multiple Scenario Use for CECL?
In this video, Cris deRitis discusses how single versus multiple scenarios can impact loss provisions and affect volatility in portfolios. One advantage of a single scenario is the simplicity, but it only provides one number under one scenario which can cause volatility over time.
In this video, Cris deRitis discusses how single versus multiple scenarios can impact loss provisions and affect volatility in portfolios. One advantage of a single scenario is the simplicity, but it only provides one number under one scenario which can cause volatility over time. Using multiple scenarios will be less volatile, but are most costly.
Related Articles
Moody's Analytics Webinar: Briefing on the CCAR ScenariosThe Federal Reserve will release its scenarios for the 2019 CCAR stress test. Join Mark Zandi and Cristian deRitis as they discuss the narratives behind the Fed’s scenarios under forecasts of detailed economic variables. |
|
Webinar-on-Demand
Moody's Analytics Webinar: Briefing on the CCAR ScenariosThe Federal Reserve have released its scenarios for the 2019 CCAR stress test. Listen as Mark Zandi and Cristian deRitis discuss the narratives behind the Fed’s scenarios under forecasts of detailed economic variables. |
Deconstructing Scenario Weights for CECLIn this paper we present the theoretical motivation behind these weights and suggests reasonable ways of choosing these weights in practice. |
|
Article
Gauging CECL CyclicalityIn this paper, we provide empirical support for the conclusion that the CECL standard will be less procyclical than the incurred loss standard. |
|
Article
Mean Reversion in CECL: The What and the HowMean 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. |
|
Article
CECLnomics and the Promise of Countercyclical Loss AccountingHistorically, accounting regulations have not served as regulatory tools in bank examiners’ toolkits. Economic capital calculations, leverage ratios, and stress tests are used to assess capital adequacy, while the primary purpose of financial statements has been to inform investors of the recent performance |
|
Article
Beyond Theory: A Practical Guide to Using Economic Forecasts for CECL EstimatesIn this paper, we discuss some of the options that institutions have for incorporating economic forecasts into their expected loan loss reserve calculations. We discuss the benefits and costs of each approach and provide practical recommendations based on institution size and complexity. |
|
Whitepaper
Beyond Theory: A Practical Guide to Using Economic Forecasts for CECL EstimatesStarting 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, and incorporate macroeconomic forecasts formally into their loss allowance estimates for the first time. |
CECL for Consumer Credit Portfolios: Modeling Best PracticesIn this webinar, our economists and consumer credit analyst will share insight on techniques and best practices for modeling allowances for CECL. |
|
Presentation
Be Reasonable: Creating Supportable Forecast Scenarios for CECLThis presentation discusses the CECL requirement of reasonable and supportable forecasts. We discuss what makes an economic scenario reasonable and supportable and discusses structural forecast model methodology. We also compare customized, standard and off-the-shelf scenarios and examine forecasting credit losses. |
