CECL Resources: A Framework and Benchmarks for Allowance Adjustments

The COVID-19 pandemic and the associated slowdown in the economy have pushed many financial institutions and corporations to reevaluate the framework under which they reserve for credit risk in their allowance models. The challenges of this process are magnified by the new CECL accounting standard that went live at the start of 2020. These overlapping events have created two areas of uncertainty that lending institutions must address:

  1. How can I support an adjustment in my allowance for items not captured in my models?
  2. How can I be comfortable that my overall allowance is reasonable?

Moody’s Analytics has developed a framework that solves these two challenges, and provides ongoing comparability analysis as economic conditions normalize. This framework—combined with insights from our CECL benchmark analysis of 14 top financial institutions during Q2—has helped our clients make more confident adjustments to their loss calculations.

We invite you to download our paper, “Adjusting Your Allowance Framework for COVID-19 and Related Stimulus Programs” and our Q2 2020 CECL Benchmark Report.