Learn about Moody's Analytics Portfolio Research methodology and findings of the new unified measures, which allow institutions to rank-order their portfolios and potential deals in a way that accounts for both economic risks and regulatory changes.
Well-established models that evaluate the current credit environment are not working given COVID-19. Internal ratings cannot update at frequencies required to react well. This paper addresses these challenges, presenting applications users can incorporate into Internal Rating Assessment and Projected Ratings and Loss.
The COVID-19 pandemic has brought credit risks that are unprecedented in size, are fast-changing, and have vastly different manifestations across industries. The uncertainty of impact is driven by epidemiological progression and sociological response, balanced by fiscal and monetary stimulus.
As institutions attempt to use established, well-developed models to evaluate the current environment, it is clear these models are not working adequately. This paper introduces new tools that bring together epidemiological, economic, and market data to navigate credit portfolios through COVID-19 and beyond.
COVID-19 created additional complexities for institutions navigating CECL accounting standard. This paper provides a natural quantitative approach for incorporating concentration in the allowance process and portfolio management.
The initial intent of the CECL guidelines was to make loan-loss allowances more reactive to the credit environment. By setting aside greater allowances, organizations would be better prepared for a default.
While bankers are increasingly managing risks related to changes in policy and technology (also known as transition risk), physical risks are not necessarily an obvious set of primary factors for banks’ commercial credit portfolio managers originating credit with maturities of three to seven years.
The Role of Banks in Illiquid Credit Markets, and the Disruption and Evolution of Credit Portfolio Management
The combination of new entrants, new technologies and (unintended) consequences of regulatory and accounting rules are driving banks to collect more data and to develop sophisticated tools when designing ever-more robust credit portfolio strategies.
RAROC and RORAC solutions that account for allowance and forward-looking IFRS 9 / CECL measures in return and risk.
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.
Moody's Analytics Webinar: Credit Earnings Volatility and Share Price Performance: Implications of IFRS 9 and CECL
The new accounting standards can have material implications for allowance and earnings dynamics. Join our researchers, Amnon Levy and Pierre Xu, explore a large sample of banks to better understand channels by which the standards affect shareholder value.