A collection of papers to help drive the adoption of the CECL standard
The following table provides an index of papers that relate to the CECL accounting guidance. This collection of papers provide readers with instruction for working with the requirements of the accounting standard as well as useful information about how the industry is putting the accounting guidance into practice.
| Title | Topics | Author(s) |
|---|---|---|
| Accounting for Purchased Credit Deteriorated Financial Assets | PCD assets treatment | Masha Muzyka |
| After the CECL Transition | After the CECL Transition: Now Comes the Hard Part | Scott Dietz |
| CECL methodologies | Exploring different CECL methodologies: Cohort level and loss rate models | Sohini Chowdhuri |
| CECLnomics-and-the-promise-of-countercyclical-loss-accounting | In this study, we address these shortcomings by utilizing data that track loan volume and performance to ascertain CECL’s cyclical impact | Cris Deritis |
| Discounted-cashflow | CECL methodologies – discounted cashflow approach | Sohini Chowdhuri |
| Fair-value-option | Electing the Fair Value Option Instead of CECL? Know the Risks | Sohini Chowdhuri |
| Gauging-cecl-cyclicality | We provide empirical support for the conclusion that the CECL standard will be less procyclical than the incurred loss standard. CECL will achieve its goal of encouraging lenders to reserve for eventual losses earlier in the lifecycle of their loans than they do today. | Cris Deritis, Mark Zandi |
| Reporting-cecl-seismic-shift | Reporting and CECL: A Seismic Shift for Accountants | Scott Dietz |
| The Impact of Assumptions on the CECL Estimate | CECL - What is the impact to our bottom line?” | Masha Muzyka |
One of the most significant changes that CECL brought about to the accounting department is the use of economic forecasts within an accounting estimate. The following table provides an index of papers specific to the use of economic factors, forecasts or scenarios within the CECL process and the resulting allowance estimate.
| Title | Topics | Author(s) |
|---|---|---|
| A-practical-guide-to-using-forecasts-for-cecl | Beyond Theory: A Practical Guide to Using Economic Forecasts for CECL Estimates | Sohini Chowdhuri, Cris Deritis |
| CECL-based-on-the-consensus | This paper compares and contrasts, through the CECL lens, the two baseline scenarios Moody’s Analytics produces monthly: the Moody’s Analytics baseline and the consensus baseline. | Sohini Chowdhuri |
| CECL forecast-uncertainty | Concerned With Forecast Uncertainty in CECL? Look Beyond the Baseline | Sohini CHowdhuri, David Fiedlhouse |
| CECL-using-a-reasonable-and-supportable-forecast | Elements of using a reasonable and supportable forecast for your CECL process | Sohini CHowdhuri, Robby Holditch, Chris Henkel |
| Constant-severity-scenarios | Defining Economic Scenarios With Constant Severities | Cris Deritis |
| Deconstructing-scenario-weights-for-cecl | This paper presents the theoretical motivation behind these weights and suggests reasonable ways of choosing these weights in practice. | Sohini Chowdhuri, Cris Deritis |
| Producing-reasonable-and-supportable-cecl | How to make estimates defendable | Eric Bao, Cris Deritis, Yashan Wang |
| Mean-Reversion-in-CECL | Mean Reversion in CECL: The What and the How | Sohini Chowdhuri, Cris Deritis |
| Reasonable-and-supportable-from-principles-to-practice | Reasonable-and-supportable-from-principles-to-practice | Sohini Chowdhuri, Cris Deritis |
CECL was a foundational change in the accounting space and it brought with it many changes within the accounting process across institutions. In addition to changes in just the accounting however, the adoption of CECL also yielded different results by asset class and/or asset structure. As a result, many institutions found themselves looking at the effect of the standard on their portfolio and strategy. The following table provides an index of papers that relate to individual asset types as well as portfolio construction.
| Title | Topics | Author(s) |
|---|---|---|
| Cards and CECL estimates | Why are cards driving CECL estimates up, and what can we expect from other institutions?1 | Laurent Birade, David Fieldhouse |
| CECL impact study of COVID-19 | Case Study: Allowance impact of COVID-19 on C&I, CRE, and Retail portfolios under CECL | Eric Bao, David Fiedlhouse, Jin Oh, Yashan Wang |
| CECL loss pooling | CECL: Determining Correct Segments for Loss Pooling | Sohini Chowdhury |
| CECL treatment for the investment portfolio | Requirements and methodologies for HTM and AFS debt securities under CECL | David Kurnov, Nihil Patel |
| Concentration Risk Considerations | Concentration Risk Consideration During the Allowance Process and COVID-19’s Impact | Amnon Levy, Masha Muzyka, Pierre Xu |
| COVID-19 credit risk impact CRE | Coronavirus (COVID-19): Credit Risk Impact on Commercial Real Estate Loan Portfolios | Eric Bao, Jun Chen, Arka Kundu, Junrong Liu, Wenjing Wang |
| Improving Risk Ratings in Preparation for CECL | Specific steps financial institutions can take to build meaningful risk ratings that lead to more precise loss calculations and better, more informed decisions. | Christian Henkel |
| Qualitative overlay factors for CRE credit risk models | Qualitative Overlay Factors for CRE Credit Risk Models in the Context of COVID-19 | Eric Bao, Jake Carr, Jun Chen |
| Unfunded Commitments: Unintended Consequences in Times of Turmoil | Understanding the consequences of large drawdowns in times of need | Laurent Birade, James Partridge, Alex Cannon |
The requirements of CECL have many facets, including the use of forecasted considerations, that had not been used in prior allowance estimates. These new requirements have driven challenges for institutions in justifying their allowance balances without the use of benchmarking. The following table provides an index of papers that relate to benchmarking a CECL estimate; including best practices as well as actual periodic industry results.
| Title | Topics | Author(s) |
|---|---|---|
| CECL Adoption and Q1 Results Amid COVID-19 | Compiled results from a select number of firms to inform you of the various impacts due to the adoption of CECL and the subsequent economic downturn from COVID-19. | Phillip Lai, Sam Rosenblum |
| CECL Build – Is it Enough? | A framework to understand the extent of your allowance | Laurent Birade, Phillip Lai |
| CECL Benchmark Q4 2020 | A framework to understand the extent of your allowance (updated for Q4 2020) | Laurent Birade, Scott Dietz, Phillip Lai |
| CECL Benchmark Q4 2021 | A framework to understand the extent of your allowance (updated for Q4 2021) | Laurent Birade, Scott Dietz, Phillip Lai |
| ILM vs. CECL: What’s the Difference? | Analysis of allowance fluctuatations over the first three quarters of 2020 overall and by high-level product category, comparing CECL and incurred loss | Laurent Birade, Phillip Lai |
| Leveraging Historical Loss Data for CECL | Introducing the Historical Loss Analyzer (HLA), a toolkit within Moody’s Analytics ImpairmentStudio™, and how to leverage public or internal data of a bank or its peer group to help address CECL requirements. | Laurent Birade, Yashan Wang, Warren Xu |
| Playing the Waiting Game with CECL Reserves and Loss Emergence | A statistical analysis on loss emergence by asset category types and a detailed review of the consumer asset class. | Laurent Birade, James Partridge, Anna Rapoport, Chris Stanley |
| CECL Benchmarking for Portfolio Management | Provides insights into the importance and benefits of benchmarking a CECL estimate | Chris Stanley, Scott Dietz |
| CECL Benchmark Q1 2022 | A framework to understand the extent of your allowance (updated for Q1 2022) | Laurent Birade, Scott Dietz, Phillip Lai |