Volatility of IFRS 9 loss estimates alarms lenders

Accounting model outputs wildly out of sync with those used to calculate regulatory capital requirements

A large Asian bank got a nasty surprise earlier this year when it conducted a test run of the model it had built to comply with new international accounting standards, known as IFRS 9.

The volatility of the model’s expected credit loss (ECL) projections far exceeded historical norms, and differed markedly from the internal ratings-based (IRB) approach the bank uses to calculate its Basel III capital requirements for credit risk.

“The volatility of expected credit losses quarter-on-quarter

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