With the CECL guidelines on mean reversion open to multiple interpretations, our paper discusses some approaches institutions can take for reversion beyond the reasonable and supportable horizon.
Article
In this study, we address these shortcomings by utilizing data that track loan volume and performance to ascertain CECL's cyclical impact.
Article
Many institutions are struggling to apply the CECL standard as it pertains to credit cards, and in particular determining the lifetime value for credit card portfolios. In this paper, we explore the different approaches to evaluating lifetime estimates for the credit card portfolio.
Article
In this article, we describe the methodology used by Moody's Analytics to assign probabilities to its regularly produced alternative macroeconomic scenarios and to calibrate these scenarios by taking into consideration recent post-crisis economic conditions.
September 2018
Pdf
Moody's Analytics
Article
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.
Article
In 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.
Article
When calculating expected credit losses, accuracy is paramount. This is a challenging task, but there are specific steps financial institutions can take to build meaningful risk ratings that lead to more precise loss calculations and better, more informed decisions.
Article
Across institutions of all sizes, one of the questions executive management should be asking their CECL working groups is, "What is the impact to our bottom line?"
Presentation
CECL Disclosures – Required and Beyond
Webinar-on-Demand
Our experts, Masha Muzyka and Jin Oh, cover transition disclosures focus areas, potential implication of the methodology chosen to the expected disclosures and ECL disclosure best practices emerging to date.
Presentation
CECL will require institutions to incorporate macroeconomic forecasts formally into their loss allowance estimates for the first time. There are a number of ways in which this can be achieved as the CECL guidelines don't specify any one particular approach. In this presentation, 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. We also show a simple solution for calculating the lifetime expected losses for consumer loans for different products.
Presentation
Challenges in CECL Implementation
Presentation
Simple But Not Simpler: Day 1 Modeling Approaches. This presentation is a review of simple approaches available to community banks on the road to their CECL journey.
Presentation
The “Easiest” Implementation – Why There Is No Easy Button
Webinar-on-Demand
Our subject matter experts, Robby Holditch, Director, and Jin Oh, Director, discuss critical steps in meeting the new CECL standard.
Presentation
This 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.
Whitepaper
Prudent credit risk management ensures institutions maintain sufficient capital and limit the possibility of a capital breach. With CECL and IFRS 9, the resulting trend toward greater credit earnings volatility raises uncertainty in capital supply, ultimately causing an increase in required capital. It is ever more challenging for institutions to manage their top-of-the house capital while steering their business to achieve the desired performance level. This paper introduces an approach that quantifies the additional capital buffer an institution requires, beyond the required regulatory minimum, to limit the likelihood of a capital breach. In addition, we introduce a new measure that allocates capital and recognizes an instrument's regulatory capital requirements, loss allowance, economic concentration risks, and the instrument's contribution to the uncertainty in capital supply and demand. In-line with the Composite Capital Measure introduced in Levy and Xu (2017), this extended measure includes far-reaching implications for business decisions. Using a series of case studies, we demonstrate the limitations of alternative measures and how institutions can optimize performance by allocating capital and making business decisions according to the new measure.
The presentation discussed strategic and tactical considerations when creating a CECL modeling approach. We discuss the approach of adapting models built from industry/peer group data and then examine leveraging bank internal ratings and industry data for both C&I and CRE portfolios.
Presentation
Our subject matter experts, Chris Henkel, Senior Director, and Anna Krayn, Senior Director, discuss critical steps in meeting the new CECL standard.
Webinar-on-Demand
Our subject matter experts, Chris Henkel, Senior Director, and Anna Krayn, Senior Director, discuss critical steps in meeting the new CECL standard.
Whitepaper
Reserving for loan loss is one of the most important accounting aspects for banks. Its objective is to cover estimated losses on impaired financial instruments due to defaults and non-payment. Reserve measurement affects both the balance sheet and income statement. It impacts earnings, capital, dividends and bonuses, and attracts the attention of bank stakeholders ranging from the board of directors and regulators to equity investors. In response to the so-called “too-little, too-late” problem experienced with loan loss reserve during the Great Financial Crisis, accounting standard setters now require that banks provision against loan loss based on expected credit losses (ECL). Arguably, calculating the Expected Credit Loss Model under IFRS 9 and CECL presents a momentous accounting change for banks, with the new standards coming into effect sometime between 2018 and 2021, depending on the jurisdiction.
FAQ
The FASB's current expected credit loss (CECL) standard requires timely, forward-looking measurement of lifetime risk using credible models. Moody's Analytics answers leading questions from your peers related to modeling challenges for CECL implementation.
March 2018
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FAQ
The FASB's current expected credit loss (CECL) standard requires a significant amount of historical data for forward-looking measurement of lifetime risk. Moody's Analytics answers leading questions from your peers related to data challenges for CECL implementation.
March 2018
Pdf
FAQ
FASB's current expected credit loss (CECL) standard requires timely, forward-looking measurement of lifetime risk using "reasonable and supportable" forecasts. Moody's Analytics answers leading questions from your peers related to the forward-looking elements of CECL implementation.
March 2018
Pdf
FAQ
In 2017, Moody's Analytics surveyed U.S. firms on their prepardness for CECL. We asked questions from gap analysis, data gathering, model and methodology selection, reasonable and supportable forecasts, to workflow automation. Read more to hear what your peer firms have to say about their current efforts and ability to meet the new CECL standard.
February 2018
Pdf
Webinar-on-Demand
In this video webcast, we identify the critical components needed for a successful CECL implementation and the new considerations it also brings.
Webinar-on-Demand
In this video webcast, we identify the critical components needed for a successful CECL implementation and the new considerations it also brings.
Webinar-on-Demand
In this video webcast, we identify the critical components needed for a successful CECL implementation and the new considerations it also brings.
Webinar-on-Demand
In this video webcast, we identify the critical components needed for a successful CECL implementation and the new considerations it also brings.
Webinar-on-Demand
In this video webcast, we identify the critical components needed for a successful CECL implementation and the new considerations it also brings.
