The New Impairment Model Under IFRS 9 and CECL
First published:
ISBN: 978-1-78272-347-9
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Implementing Both IFRS 9 and CECL
Jimmy Yang and Kenneth Chen
Implementing Both IFRS 9 and CECL
Introduction
The New Era of Expected Credit Loss Provisioning
The Marking of CECL Standard: Comments and Reflections
Sources of Modelling Variation in CECL Allowances
A CRO’s Perspective: Implementing, Operationalising and Governing of IFRS 9
Implementing Both IFRS 9 and CECL
Macroeconomic Forecasting and Scenario Design for IFRS 9 and CECL
Technology Solutions for CECL and IFRS 9
Implementing IFRS 9: Quantifying Expected Credit Losses in Retail and Wholesale Portfolios
From Incurred Loss to CECL: Historical Perspectives and Practical Guidance
Loss Forecasting Retail and Commercial Portfolios for CECL
Implementing CECL at Small and Community Banks
The New Impairment Model: Audit and Disclosure Challenges
The New Impairment Model: Governance and Validation
The Impacts of CECL: Empirical Assessments and Implications
How the New Impairment Model Could Affect Banks’ Business Models
Measuring and Managing the Impact of New Impairment Models on Dynamics in Allowance, Earnings and Bank Capital
Integration into Regulatory Capital Frameworks
Implications for Equity and Debt Investors
INTRODUCTION
Purpose
This chapter outlines the impairment framework and various approach for modelling expected credit loss (ECL), in order to meet the International Financial Reporting Standard 9 (IFRS 9) and US GAAP current expected credit loss (CECL) requirements. Financial institutions with international exposures within and outside of the US must comply with both standards (ie, US-based financial institutions with non-US booking legal entities and non-US-based financial institutions with US booking legal entities). For each key component of the IFRS 9 and CECL framework, we present a summary of the requirements and a high-level comparison of both methodologies.
The concept and estimation of ECL, which comprises probability of default (PD), loss-given default (LGD), exposure at default (EAD), prepayment11 Compared with other credit metrics, prepayment is less researched for wholesale portfolios. However, under IFRS 9 and CECL, incorporating the impact of prepayment into the ECL estimation is one of the considerations. and the discount rate using the effective interest rate (EIR), are well recognised in the regulatory environment for the purposes of estimating future
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