In today’s economic environment, financial institutions must adjust their allowance models for the impact of COVID-19. No recent downturns can match the pandemic shutdown in terms of speed or severity—and the long-term effects on the economy are still unknown. So, how can financial institutions appropriately reflect the economic contortions caused by this crisis in their allowance models?
In this paper, our experts take a look at how different economic impacts from the crisis could quantitatively be incorporated into allowance models. We developed a simple adjustment framework that can be used as a starting point and highlights three common areas to adjust allowance calculations:
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