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In the third webinar in our CECL quantification webinars series, our experts discussed which commercial and industrial (C&I) models and methodologies can be leveraged to fulfill CECL requirements, and key considerations in transitioning these models.

Implementation of the new financial instruments impairment standard (CECL), may take between twelve months to two years and over 62% of banks surveyed by Moody’s Analytics expect CECL compliance to increase their overall provisions.

Successful implementation requires understanding the impact of the accounting standard on provisions and identification of appropriate methodologies to incorporate the forward-looking information and life-of-loan horizon required for CECL.

Moody’s Analytics has designed a series of CECL Methodology webinars to help firms of all sizes with the tactical and strategic considerations when selecting the best modeling approach.

In this third webinar of our series, we cover:

How to leverage these existing capabilities in the transition to CECL

Key methodologies (approaches, segmentation, data requirements) and challenges for C&I Considerations for Lifetime Expected Credit Losses vs. Incurred Loss Model

The overall quantitative impact of CECL and how to be prepared

Related Insights
Whitepaper

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

With the new CECL and IFRS 9 requirements, we see an increased need for lifetime probability of default models. In this document, we formally investigate and summarize the term structure properties consistently seen across public, private, and rated firms. We observe that the default rate for “good” firms tends to increase over time, while the default rate for “bad” firms decreases over time, an indication of the mean-reversion effect seen with firms' default risk.

May 2018 Pdf Sajjad Beygiharchegani, Uliana Makarov, Dr. Janet ZhaoDr. Douglas Dwyer
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Applications of Alternative Data in Credit Decisioning

In this webinar, a panel of research and data scientist experts across Moody's Analytics discuss social data in probability of default modeling, closed and open data for location scoring, and text analytics for credit risk.

April 2018 Pdf Eric Bao, Irina Korablev, Rama Sankisa, Dr. Janet Zhao
Webinar-on-Demand

Applications of Alternative Data in Credit Decisioning

With an immense amount of available data generated worldwide within the last two years, the next evolution of banking analytics will include information from a variety of open and closed sources.

April 2018 WebPage Eric Bao, Irina Korablev, Rama Sankisa, Dr. Janet Zhao
Presentation

Empowering Users, Satisfying Auditors for CECL Presentation Slides

In this presentation, Emil Lopez and Olivier Brucker from Moody's Analytics, demonstrates how the Moody's Analytics Credit Loss and Impairment Analysis suite helps financial institutions overcome challenges with CECL and implement best-practice allowance processes.

October 2017 Pdf Emil Lopez, Olivier Brucker
Webinar-on-Demand

Empowering Users, Satisfying Auditors for CECL

In this webinar, Emil Lopez and Olivier Brucker from Moody's Analytics, demonstrates how the Moody's Analytics Credit Loss and Impairment Analysis suite helps financial institutions overcome CECL challenges and implement best-practice allowance processes.

October 2017 WebPage Emil Lopez, Olivier Brucker
Whitepaper

Combining Financial and Behavioral Information to Predict Defaults for Small and Medium-Sized Enterprises – A Dynamic Weighting Approach

One large challenge lenders currently face is how to combine different types of information into metrics that can support good business decisions. Currently, the banking industry uses two primary types of information — financial information and behavioral information — independently, to assess risk. Financial information includes Income Statement, Balance Sheet, Cash Flow, and Financial Ratios. Behavioral information includes spending and payment patterns, among others. Both types of information provide unique insights, but, to date, they have not been combined to generate one comprehensive risk metric for commercial use.

September 2017 Pdf Alessio Balduini, Dr. Douglas DwyerDr. Janet Zhao, Sara Gianfreda, Reeta Hemminki, Lucia Yang
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Moody's Analytics RiskCalc Transfer Pricing Solution

Tax authorities monitor cross-border, inter-company loan and financing transactions to curb tax avoidance and require arm's length pricing for such transactions. At the core of arm's length pricing is the process of understanding the creditworthiness of a borrower and identifying a typical interest rate charged to borrowers with comparable credit ratings. The Moody's Analytics RiskCalc Transfer Pricing Excel Template provides a consistent, analytical solution to the arm's length transfer pricing process. This document explains the methodology behind this tool.

August 2017 Pdf Dr. Janet Zhao, Jeunghyun Kim
Article

Machine Learning: Challenges, Lessons, and Opportunities in Credit Risk Modeling

In this article, we analyze the performance of several machine learning methods in assessing credit risk of small and medium-sized borrowers.

July 2017 WebPage Dinesh BachamDr. Janet Zhao
Presentation

CECL Quantification:Commercial & Industrial (C&I) Portfolios Webinar Slides

In the third webinar in our CECL quantification webinars series, our experts discussed which commercial and industrial (C&I) models and methodologies can be leveraged to fulfill CECL requirements, and key considerations in transitioning these models.

March 2017 Pdf Emil LopezDr. Janet Zhao
Presentation

Introduction to CECL Quantification Webinar Slides

In this presentation, our experts Emil Lopez and Jing Zhang, introduce some key CECL quantification methodologies and enhancements that can be made to existing approaches to make them CECL compliant.

February 2017 Pdf Emil LopezDr. Jing Zhang
Webinar-on-Demand

CECL Webinar Series: Introduction to CECL Quantification

In this presentation, our experts Emil Lopez and Jing Zhang, introduce some key CECL quantification methodologies and enhancements that can be made to existing approaches to make them CECL-compliant.

February 2017 WebPage Emil LopezDr. Jing Zhang
Webinar-on-Demand

NIIF 9: Un cambio fundamental en la contabilización de pérdidas de crédito

NIIF 9 introduce cambios en la contabilidad de riesgo crediticio que prometen aumentar la transparencia y confianza en los estados financieros.

November 2016 WebPage Emil Lopez
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Getting Ready for CECL

The FASB’s new impairment standards won’t take effect until 2020, but institutions should start planning now. This webinar outlines key considerations for early CECL preparation, including: main challenges; expectations of auditors, regulators, and investors; planning in firms of varying sizes; and how to get started.

October 2016 WebPage Anna KraynEmil Lopez
Webinar-on-Demand

CECL: CECL v. IFRS 9

In this webinar, we identify the key similarities and differences between the two standards of IFRS 9 and CECL such as timeline for adoption and complexity of implementation. And for those firms subject to both standards, we provide insight into the key operational considerations.

September 2016 WebPage Emil Lopez
Webinar-on-Demand

CECL Spotlight with Emil Lopez

Listen in as Emil Lopez identifies key steps firm can take as they prepare for CECL implementation.

September 2016 WebPage Emil Lopez
Webinar-on-Demand

CECL: Disclosures and Timelines

In this webinar, we explore the implications of new disclosure requirements and the effective dates for CECL implementation. We explain why banks should start preparing for CECL now and what are the advantages to early implementation.

September 2016 WebPage Anna KraynEmil Lopez
Webinar-on-Demand

CECL: The Road to CECL

In this webinar, we discuss what the new CECL standard is and why the FASB is changing Impairment Accounting. Key topics include the timeline for implementation, key differences are in the new impairment models compared with the existing ones, and how the allowance calculation process is likely to change.

September 2016 WebPage Anna KraynEmil Lopez
Webinar-on-Demand

The Long Road to CECL: Implementation Considerations

In this video cast, we will discuss the implications of the final CECL standard and approaches to implementation.

September 2016 WebPage Anna KraynEmil Lopez

The Long Road to CECL: Implementation Considerations Presentation Slides

As firms prepare for CECL, there are still many questions about the best approaches to implementation and how the regulatory requirements will impact adoption. In this webcast, we answer practitioners questions and provide suggested approaches for implementation.

September 01, 2016 Pdf Anna KraynEmil Lopez
Whitepaper

RiskCalc Banks v4.0 Model

There has been a significant increase in the demand for quantitative tools that assess the default risk of banks across different geographies. Pooling data from more than 90 countries, we see commonalities in linking default risk to a specific set of financial ratios. This finding suggests that a prescribed set of financial ratios, properly transformed, works well in estimating banks' default risk in a robust fashion. With this insight, we constructed the RiskCalc™ Banks v4.0 Model, intended for assessing the probability of default (PD) for banks across different geographies and regulatory environments. The model provides a unified framework to assess bank risk across different countries and regions, as well as different economic cycles. The one-year model is based upon a set of well-defined and ready-to-calculate financial ratios that effectively measure bank profitability, leverage, liquidity, growth, and asset quality. The five-year model combines these ratios with a measure derived from an economic capital framework based upon portfolio theory. Specifically, this measure captures the unexpected loss of a bank's loan portfolio relative to its loss-absorbing capital. Validation results show that the model delivers strong and robust power in rank ordering high risk banks from low risk banks, and that the results are robust across geographies and bank sizes.

July 2016 Pdf Dr. Douglas DwyerDr. Janet Zhao, Yanruo Wang
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Preparing for the New Impairment Requirements: A Practitioner's View

This article describes the new standards set forth by the FASB. It covers the history of the ALLL and explains how the recent financial crisis highlighted the need for new standards.

June 2016 WebPage Christian HenkelEmil Lopez
Webinar-on-Demand

Mejores Prácticas en el Análisis, Calificación, y Evaluación de Créditos

Existen varios desafíos para los profesionales de crédito al intentar construir, validar e integrar herramientas de análisis de crédito en sus plataformas y modelos internos. La optimización de este proceso permite a los bancos concentrarse menos en el proceso y más en el análisis y mitigación del riesgo crediticio.

May 2015 WebPage Emil Lopez, Elaine Bell
Webinar-on-Demand

Key Findings of the Moody's Analytics Stress Testing Survey

This webinar discusses the challenges faced in the recent ECB/EBA/PRA exercise and how banks are planning to address these challenges for future stress tests.

November 2014 WebPage Elaine Bell, Emil Lopez
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RiskCalc Plus Stress Testing Model (ratio-based approach)

In this paper, we detail a RiskCalc™ Stress Testing Model (ratio-based approach), based upon economic and accounting principles. Our simple, yet fundamental, model assumptions make the framework adaptable to many uses, including: loss forecasting, pro forma analysis, stress testing, as a challenger or benchmark model, and for customized scenario analysis.

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Usage and Exposures at Default of Corporate Credit Lines: An Empirical Study

A major source of firm funding and liquidity, credit lines can pose significant credit risk to the underwriting banks. Using a unique dataset pooled from multiple U.S. financial institutions, we empirically study the credit line usage of middle market corporate borrowers. We examine to what extent borrowers draw down their credit lines and the characteristics of those firms with high usage. We study how line usage changes with banks' internal ratings, collateral, and commitment size and through various economic cycles. We find that defaulted borrowers draw down more of their lines than non-defaulted borrowers. They also increase their usage when approaching default. Risky borrowers tend to utilize a higher percentage of their credit lines as well.

Article

How to Unlock Benefits from CECL Compliance: 5 Principles

The primary objective of FASB's CECL standard is to provide investors with more meaningful and timely information regarding credit risk, but it also presents a unique opportunity for financial institutions to advance credit risk practices, break down silos and strengthen business decisions. What steps can your organization take to extract value from CECL, beyond compliance?

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How Banks and Credit Unions Can Prepare for CECL Implementation

In this short video, learn the four key steps institutions should take to prepare for CECL implementation.

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CECL vs. IFRS 9

This infographic provides a comparison of CECL and IFRS 9.

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