CRE CECL Methodologies
The second in our CECL Quantification webinar series, this webinar discussed how commercial real estate (CRE) 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.
Related Insights
|
Article
Improving Risk Ratings in Preparation for CECLWhen 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. |
Moody's Analytics Webinar: CECL – Adapting to AdoptJoin us as our experts, Chris Henkel, Senior Director, and Robby Holditch, Director, discuss critical steps in meeting the new CECL standard. |
|
Presentation
CECL: Adapting to AdoptOur subject matter experts, Chris Henkel, Senior Director, and Anna Krayn, Senior Director, discuss critical steps in meeting the new CECL standard. |
|
Webinar-on-Demand
CECL: Adapting to AdoptOur subject matter experts, Chris Henkel, Senior Director, and Anna Krayn, Senior Director, discuss critical steps in meeting the new CECL standard. |
|
Interview
What are the Major Differences with the New CECL Accounting Standard?In this video, Chris Henkel explains how the new CECL standard affects the measurement of expected credit losses and what institutions can do to prepare for implementation. |
|
Interview
How Should Institutions be Preparing for CECL?In this video, Chris Henkel identifies the key factors institutions need to consider during the planning process and how to improve the measurement of credit risk over the lifetime of a loan. |
|
Interview
What is CECL (Current Expected Credit Loss)?In this video, Chris Henkel from Moody’s Analytics provides a brief overview about the new accounting standard, Current Expected Credit Loss (CECL). Listen in to learn more about the implications and how institutions can prepare. |
|
Webinar-on-Demand
Rethinking Commercial Real Estate Credit RiskCommercial real estate (CRE) loans are seeing strong loan growth, combined with easing underwriting, resulting in increased credit risk. CRE mortgages often make up a significant part of a bank’s loan portfolio. In this webinar, we explore the keys to effective credit risk management for CRE. |
|
Whitepaper
Estimating Commercial Real Estate (CRE) Stressed Loss Measures Under Federal Reserve 2017 Comprehensive Capital Analysis and Review (CCAR) ScenariosFor the 2017 CCAR program, the Federal Reserve published three macroeconomic and financial scenarios to be used in stress testing 34 CCAR financial institutions. In this study, we analyze 27 institutions, with a total of more than $760 billion in exposures to commercial real estate loans, using Moody's CMM Stress Testing framework. This report describes how we derive credit loss estimates for the CRE loan portfolios held by CCAR firms. This is our first study leveraging the loan-level commercial banks' data collected via Moody's Analytics CRE Credit Research Database (CRD™). Our analysis estimates that the expected nine-quarter, cumulative CRE portfolio loss through the first quarter of 2019 is 6.5% under the CCAR 2017 Severely Adverse Scenario. The primary factors behind the higher loss estimate compared to last year's stressed scenario (5.1% loss) is that this year's scenario features a slightly more severe economic downturn and a significantly larger decline in commercial real estate prices. |
|
Presentation
CRE CECL Methodologies Webinar SlidesIn this presentation for the CECL Quantification webinar series, we discuss how commercial real estate (CRE) models and methodologies can be leveraged to fulfill CECL requirements, and key considerations in transitioning these models. |
|
Webinar-on-Demand
The Value of Granular Risk Rating Models for CECLGranular risk rating models allow creditors to understand the credit risk of individual loans in a portfolio, facilitating underwriting and monitoring activities. In this webinar we will outline the value of granular risk rating models for CECL. |
|
Article
Implications of the FASB's New Credit Loss Impairment StandardOn June 16, FASB issued the much anticipated financial instruments impairment standards update. The implications of this standard are significant and will change the way credit losses are measured for most financial assets (e.g. receivables, debt securities and loans). |
|
Article
Preparing for the New Impairment Requirements: A Practitioner's ViewThis 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. |
|
Webinar-on-Demand
Preparing Community Banks for CECLThe FASB voted to move forward with the new impairment model, known as the Current Expected Credit Loss (“CECL”) model, which will change how you calculate allowance for credit losses. Ensure your institution identifies challenges and processes early. |
|
Whitepaper
Estimating Commercial Real Estate (CRE) Stressed Loss Measures Under Federal Reserve 2016 Comprehensive Capital Analysis and Review (CCAR) ScenariosFor the 2016 CCAR program, the Federal Reserve published three macroeconomic and financial scenarios to be used in the stress testing of 33 CCAR financial institutions. In this study, we analyze 26 of these financial institutions, with a total of more than $695 billion in exposure to commercial real estate loans, using Moody's CMM Stress Testing framework. This report describes how we derive credit loss estimates for the CRE loan portfolios held by CCAR firms. Our analysis estimates that the expected nine-quarter, cumulative CRE portfolio loss through the first quarter of 2018 is 5.1% under the CCAR 2016 Severely Adverse Scenario. The primary factor behind the lower loss estimate compared to last year's stressed scenario is that CRE market conditions continued to improve during the past five quarters. From Q3 2014–Q4 2015, the commercial real estate price index increased by 11.6%, which substantially lowered average LTV and improved DSCR for the typical CRE loan portfolio. |
|
Whitepaper
Modeling Canadian Commercial Real Estate Loan Credit Risk: An OverviewCommercial real estate (CRE) exposures represent a large market share of credit portfolios for many Canadian banks, credit unions, insurance companies, and asset managers. While this segment escaped the most recent financial crisis relatively safely, Canadian CRE loan portfolios may be facing heightened credit risks given the current changing market conditions, which include sliding oil prices and reduced demand for natural resources and possible interest rate hikes. Given this environment, is critical to use an objective credit risk measurement solution that quantifies CRE loan risks consistently and objectively in order to help assess, stress test, and manage loan portfolios. This paper presents Moody's Analytics Commercial Mortgage Metrics (CMM™) framework, tailored for Canadian CRE loan credit risk, forming the core of our Commercial Mortgage Metrics: Canada (CMM Canada™) product. Based on the well-established CMM U.S. model, our enhanced framework incorporates new factors that capture unique Canada CRE market dynamics and lending practices. We describe our modeling approaches for default probability, loss given default (LGD), Expected Loss (EL), and other related risk measures. |
|
Presentation
Effective Risk Management in CRE Lending Webinar Presentation SlidesThis webinar discusses the importance of effective credit risk management for commercial real estate lending. |
|
Webinar-on-Demand
Effective Risk Management in CRE LendingCommercial real estate (CRE) mortgages can often make up a significant part of the loan portfolio. To gain competitive advantage in the marketplace, lending officer's must acquire an in-depth understanding of their borrowers' CRE portfolios. |
|
Whitepaper
Estimating Commercial Real Estate (CRE) Stressed Loss Measures Under Federal Reserve 2015 Comprehensive Capital Analysis and Review (CCAR) ScenariosThe Comprehensive Capital Analysis and Review (CCAR) program is an annual capital adequacy exercise conducted under the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act rules. For the 2015 CCAR program, the Federal Reserve published three macroeconomic and financial scenarios to be used in the stress tests of 31 CCAR financial institutions. In this study, we analyze 22 of these financial institutions, with a total of more than $558 billion in exposures to commercial real estate loans, under the Moody's CMM Stress Testing framework. This report describes how we derive credit loss estimates for the CRE loan portfolios held by CCAR firms. Our analysis estimates that the expected nine-quarter, cumulative CRE portfolio loss through the end of 2016 is 5.6% under the CCAR 2015 Severely Adverse Scenario. The primary factor behind the slightly higher loss estimate compared to last year's stressed scenario is that the proportion of construction loans in banks' CRE portfolios has started to increase. |
|
Webinar-on-Demand
Private Firm C&I Credit Risk Solutions & Best PracticesThis webinar discusses credit risk management challenges, best practices, stress testing model and approach and private firm C&I risk tools. |
|
Presentation
CRE Credit Risk Solutions and Best Practices Webinar SlidesMoody's Analytics CRE credit risk experts, Christian Henkel and Sumit Grover, discuss the topics including an overview of CRE credit risk management challenges, data management and credit risk solutions that address the needs of CRE risk managers, and CRE stress testing model and approach. |
|
Webinar-on-Demand
CRE Credit Risk Solutions and Best PracticesMoody’s Analytics CRE credit risk experts, Christian Henkel and Sumit Grover, discuss the topics including an overview of CRE credit risk management challenges, data management and credit risk solutions that address the needs of CRE risk managers, and CRE stress testing model and approach. |
|
Presentation
ALLL and the New EstimateThis presentation gives an update on the proposed impairment model and improving the measurement of credit losses. |
|
Presentation
Establishing Best Practices for Stress Testing your Private Company C&I PortfoliosLearn about stress testing best practices and our RiskCalc™ Plus United States Stress Testing Models. This webinar focuses on stress testing best practices for the private company C&I asset class. |
|
Webinar-on-Demand
Establishing Best Practices for Stress Testing your Private Company C&I PortfoliosThis webinar provides an overview on the following of the regulatory environment, stress testing challenges and best practices for a sound stress testing framework and the Moody’s Analytics RiskCalc Plus. |
|
Whitepaper
Estimating Commercial Real Estate (CRE) Stressed Loss Measures Under Federal Reserve 2013 Comprehensive Capital Analysis and Review (CCAR) ScenariosDownload this whitepaper to understand how Moody's Analytics' analysis derives the credit loss estimates for the CRE loan portfolios held by CCAR firms. Our analysis estimates that the expected nine quarter, cumulative CRE portfolio loss through the end of 2014 is 4.7% under the CCAR 2013 Severely Adverse scenario. We attribute the lower loss estimate compared to last year's stressed scenario to a number of factors, which we discuss. |
Stress Testing Commercial Real Estate Loan Credit Risk: A Scenario-Based ApproachThe future remains inherently uncertain. This white paper describes how Scenario-based credit risk models are becoming a business necessity, given increased regulatory and internal risk management requirements for periodic stress tests. |
|
Whitepaper
Modeling Commercial Real Estate Loan Credit Risk: An OverviewIn this paper, we present the Moody's Analytics framework for measuring commercial real estate loan credit risk, which is the model at the core of our Commercial Mortgage Metrics (CMM)™ product. We describe our modeling approaches for default probability, loss given default (LGD), Expected Loss (EL), and other related risk measures. |
|
Product Feature Demo
How Banks and Credit Unions Can Prepare for CECL ImplementationIn this short video, learn the four key steps institutions should take to prepare for CECL implementation.
WebPage
Christian Henkel, Emil Lopez
|
