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Mean Reversion in CECL: The What and the How

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

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.

October 2018 Pdf Dr. Cristian deRitis
Article

CECL: Credit Cards and Lifetime Estimation - A Reasonable Approach

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.

September 2018 WebPage Laurent Birade
Article

Assigning Probabilities to Macroeconomic Alternative Scenarios

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

To Follow the Pack or Not: 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.

September 2018 Pdf Dr. Sohini Chowdhury
Article

Beyond Theory: A Practical Guide to Using Economic Forecasts for CECL Estimates

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

Improving Risk Ratings in Preparation for CECL

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.

August 2018 WebPage Christian Henkel
Article

The Impact of Assumptions on the CECL Estimate

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?"

August 2018 WebPage Masha Muzyka
Presentation

CECL Disclosures – Required and Beyond

CECL Disclosures – Required and Beyond

July 2018 Pdf Masha Muzyka, Jin Oh
Webinar-on-Demand

CECL Disclosures – Required and Beyond

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.

July 2018 WebPage Masha Muzyka, Jin Oh
Presentation

Incorporating Economic Forecasts into CECL

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.

July 2018 Pdf Dr. Sohini Chowdhury
Presentation

Challenges in CECL Implementation

Challenges in CECL Implementation

July 2018 Pdf Robby Holditch
Presentation

Simple But Not Simpler: Day 1 Modeling Approaches

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.

July 2018 Pdf Laurent Birade
Presentation

The “Easiest” Implementation – Why There Is No Easy Button

The “Easiest” Implementation – Why There Is No Easy Button

June 2018 Pdf Robby Holditch
Webinar-on-Demand

CECL: The "Easiest" Implementation

Our subject matter experts, Robby Holditch, Director, and Jin Oh, Director, discuss critical steps in meeting the new CECL standard.

June 2018 WebPage Robby Holditch
Presentation

Be Reasonable: Creating Supportable Forecast Scenarios for CECL

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.

June 2018 Pdf Dr. Cristian deRitis
Whitepaper

A Composite Capital Measure Unifying Business Decision Rules in the Face of Regulatory Requirements Under New Accounting Standards

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.

May 2018 Pdf Dr. Amnon Levy, Xuan Liang, Dr. Pierre Xu

Leveraging Bank Internal Data and Industry Group Data for CECL Modelling

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.

April 24, 2018 Pdf Eric Bao, Dr. Yanping Pan, Yanruo Wang
Presentation

CECL: Adapting to Adopt

Our subject matter experts, Chris Henkel, Senior Director, and Anna Krayn, Senior Director, discuss critical steps in meeting the new CECL standard.

April 2018 Pdf Christian Henkel, Anna Krayn
Webinar-on-Demand

CECL: Adapting to Adopt

Our subject matter experts, Chris Henkel, Senior Director, and Anna Krayn, Senior Director, discuss critical steps in meeting the new CECL standard.

April 2018 WebPage Christian Henkel, Anna Krayn
Whitepaper

Measuring and Managing the Impact of IFRS 9 and CECL Requirements on Dynamics in Allowance, Earnings, and Bank Capital

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.

March 2018 Pdf Dr. Amnon Levy, Dr. Jing Zhang
FAQ

CECL Modelling FAQs

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 Pdf
FAQ

CECL Data FAQs

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

CECL Forecasts and Economic Scenarios FAQs

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

The Transition to CECL: Survey Results

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

The Transition to CECL: IFRS 9 Lessons Learned, Part 2

In this video webcast, we identify the critical components needed for a successful CECL implementation and the new considerations it also brings.

February 2018 WebPage Dr. Cristian deRitis, Michael Gullette, Masha Muzyka
Webinar-on-Demand

The Transition to CECL: Disclosures, Part 4

In this video webcast, we identify the critical components needed for a successful CECL implementation and the new considerations it also brings.

February 2018 WebPage Dr. Cristian deRitis, Michael Gullette, Masha Muzyka
Webinar-on-Demand

The Transition to CECL: Implementation Considerations, Part 3

In this video webcast, we identify the critical components needed for a successful CECL implementation and the new considerations it also brings.

February 2018 WebPage Dr. Cristian deRitis, Michael Gullette, Masha Muzyka
Webinar-on-Demand

The Transition to CECL: Final Picture, Part 5

In this video webcast, we identify the critical components needed for a successful CECL implementation and the new considerations it also brings.

February 2018 WebPage Dr. Cristian deRitis, Michael Gullette, Masha Muzyka
Webinar-on-Demand

The Transition to CECL: Economic Impact, Part 1

In this video webcast, we identify the critical components needed for a successful CECL implementation and the new considerations it also brings.

February 2018 WebPage Dr. Cristian deRitis, Michael Gullette, Masha Muzyka
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