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    Article

    Will CECL Ultimately Be Worth All the Fuss?

    The industry is currently a hive of CECL-related activity. Many banks are busily testing their systems or finalizing their preparations for the go-live date, which is either in January 2020 or somewhat later, depending on the organization. Some are still making plans for implementation, and the rest are worried that they should be.

    August 2019 Pdf Dr. Tony Hughes
    Article

    Reasonable and Supportable Forecasts - From Principles to Practice

    With many of the larger SEC filers well ahead in their CECL preparations and gearing up for validation, we examine how the requirements of an R&S forecast and reversion may be interpreted.

    Article

    CECL, IFRS 9 and the Demand for Forecast Stability

    Loan-loss provisioning models must take a variety of economic and client factors into account, but, with the right approach, banks can develop sensible loss forecasts that are more accurate and less susceptible to volatility.

    June 2019 WebPage Dr. Tony Hughes
    Article

    Leveraging Historical Loss Data for CECL

    This paper explores the CECL standard's background, the choices community banks, regional banks, and credit unions face, and some suggested approaches for dealing with these challenges.

    June 2019 WebPage Laurent Birade, Dr. Yashan Wang, Warren Xu
    Article

    Defining Economic Scenarios With Constant Severities

    Alternative economic scenarios are invaluable for quantifying and managing forecast risk. In this article, we define these constant severity scenarios and the models used to estimate their probabilities.

    Article

    Reporting and CECL: A Seismic Shift for Accountants

    From an accounting standpoint, the changes in how to account for credit-loss reserves within the banking, insurance, and lending industries stemming from the Financial Accounting Standards Board's (FASB) current expected credit losses (CECL) guidance are significant.

    May 2019 WebPage Scott Dietz
    Article

    Podcast: CECL – New Accounting Standard and Its Impact on Community Banks

    Moody's Analytics Director Robby Holditch recently visited the Barret School of Banking to discuss the upcoming current expected credit loss (CECL) accounting standard and its ramifications for the community banking space.

    May 2019 WebPage
    Whitepaper

    Earnings Volatility, Share Price Performance, and Credit Portfolio Management Under CECL and IFRS 9

    This paper studies how earnings volatility induced by credit risk can impact share price performance for financial institutions under CECL and IFRS 9, and quantifies the benefit of an active credit risk management practice.

    April 2019 WebPage Dr. Amnon Levy, Xuan Liang, Pierre Xu
    Article

    Finding a CECL Solution for Smaller Banks

    Good-quality CECL projections can be developed using high-quality data that is available free of charge.

    April 2019 Pdf Dr. Tony Hughes
    Article

    A Framework for Disclosing Period-over-Period CECL-Estimate Changes

    While many institutions are currently in the throes of implementing the current expected credit loss (CECL) accounting standard, some are thinking ahead and some that are not. CECL will have an unavoidable impact on management disclosures, specifically around explaining period-over-period changes in allowance.

    March 2019 WebPage Laurent Birade
    Whitepaper

    Chartis Research | Moody's Analytics Credit Risk Vendor Analysis Report

    Moody's Analytics provides financial intelligence and analytical tools supported by risk expertise, expansive information resources, and the application of new technology. Its solutions, made up of research, data, software and professional services, are assembled with the aim of delivering a seamless customer experience.

    February 2019 Pdf
    Article

    Moody's Analytics Wins the Strategy Category Award in the 2019 Chartis RiskTech100®

    Winning a game of chess requires strategy and tactics, seeing where the game will go next and making deft, skilful moves accordingly. The winners in the RiskTech100 ® awards are vendors thinking like grand masters, succeeding with decision-making and looking into the future to unlock opportunities.

    February 2019 WebPage
    Article

    CECL Is In Trouble, But There's A Fix

    If CECL is to be rethought with this aim in mind, policymakers should learn from successful countercyclical features in the economy and design the new loan loss accounting system accordingly.

    January 2019 Pdf Dr. Tony Hughes
    Article

    Moody's Analytics Wins the CECL Category Award in the 2019 Chartis RiskTech100®

    Moody's Analytics Wins CECL Category Award in 2019 Chartis RiskTech100

    January 2019 WebPage
    Article

    Modeling Credit Card Losses Under CECL

    Through this study, we illustrate the challenges for modelers under CECL and assess the impact of the new accounting standards.

    January 2019 Pdf David Fieldhouse
    Article

    Gauging CECL Cyclicality

    In this paper, we provide empirical support for the conclusion that the CECL standard will be less procyclical than the incurred loss standard.

    December 2018 Pdf Mark Zandi, Dr. Cristian deRitis
    Article

    CECL Roundtable FAQs

    In light of the Current Expected Credit Loss accounting standard to be issued by the Federal Accounting Standards Board, Moody's Analytics hosted a CECL Economic Scenario roundtable. The objective was to have an open dialogue around economic forecasting techniques for calculating life-of-loan expected credit losses

    November 2018 WebPage
    Article

    Auto Stabilizers, CECL and IFRS 9

    IFRS 9 and CECL were designed with two outcomes in mind: to ensure sufficient reserves on the eve of a recession and to prevent restricted lending from curtailing a nascent recovery.

    October 2018 Pdf Dr. Tony Hughes
    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

    CECL Impact on Credit Loss Allowances for U.S. Auto Loans

    This paper examines the impact of adopting current expected credit loss (CECL) standards for U.S. auto lenders. We use a dataset of national retail auto loans to illustrate potential changes in model-based allowances across the industry. Our analysis shows that on the first day of CECL adoption, loss allowances for U.S. auto lenders could increase by as much as 1.5 to 2.5 times the current allowances.

    September 2018 Pdf Moody's Analytics
    Article

    Mean Reversion in CECL: The What and the How

    Mean reversion is an important facet of the upcoming Current Expected Credit Loss accounting standard. Under CECL, lenders will need to estimate, and set aside an allowance for, the expected lifetime loss for each loan they book at the time of origination.

    September 2018 WebPage Dr. Sohini Chowdhury, Dr. Cristian deRitis
    Article

    To Follow the Pack or Not: CECL Based on the Consensus

    One of the key differentiators between the upcoming Current Expected Credit Loss and the current incurred loss accounting process is the formal incorporation of forward-looking forecast information.

    September 2018 WebPage Dr. Sohini Chowdhury
    Article

    CECLnomics and the Promise of Countercyclical Loss Accounting

    Historically, accounting regulations have not served as regulatory tools in bank examiners' toolkits. Economic capital calculations, leverage ratios, and stress tests are used to assess capital adequacy, while the primary purpose of financial statements has been to inform investors of the recent performance

    September 2018 WebPage Dr. Cristian deRitis
    Article

    Assigning Probabilities to Macroeconomic Alternative Scenarios

    Both the IFRS 9 and CECL accounting standards move from an incurred loss impairment model to a forward-looking framework that requires banks to calculate lifetime expected credit losses.

    September 2018 WebPage Stephen Ciccarella
    Article

    How Will CECL Perform in a Typical Recession?

    I watched The Big Short for the umpteenth time the other day. Watching the film, a young credit analyst may wonder how we could have been so collectively stupid. The monumental boom and bust was built on a single unsupportable premise: that house prices can never fall in a sustained manner at anything other than a local level. The subprime crisis simply pulverized this myth.

    August 2018 Pdf Dr. Tony Hughes
    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
    Whitepaper

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

    Starting in 2020, the Current Expected Credit Loss (CECL) accounting standard will require financial institutions to reserve for estimated lifetime losses on loans and leases as soon as they are originated, and incorporate macroeconomic forecasts formally into their loss allowance estimates for the first time.

    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
    Whitepaper

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

    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.

    May 2018 WebPage Dr. Amnon Levy, Xuan Liang, Pierre Xu
    Whitepaper

    Features of a Lifetime PD Model: Evidence from Public, Private, and Rated Firms

    With the new CECL and IFRS 9 requirements, this document formally investigates and summarizes the term structure properties consistently seen across public, private, and rated firms.

    May 2018 WebPage Sajjad Beygiharchegani, Uliana Makarov, Dr. Janet Zhao, Dr. Douglas Dwyer
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