The New Impairment Model Under IFRS 9 and CECL
First published:
ISBN: 978-1-78272-347-9
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Macroeconomic Forecasting and Scenario Design for IFRS 9 and CECL
Cristian deRitis, Juan M Licari and Gustavo Ordoñez-Sanz
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
All business decisions ultimately incorporate some degree of forecasting. A forecast may be as simple as the belief that historical relationships observed in the past will continue in the future, or it may be much more dynamic and sophisticated, forward-looking view. Lending decisions are essentially bets on a forecast that the obligor has a reasonably high chance of repaying its debt. Forecasts of performance are critical to the underwriting, pricing and servicing decisions of banks and other lenders. Ultimately, it is the quality of these forecasts that will determine whether an institution is profitable or risks insolvency.
Not only does forecasting make sound business sense, but regulators now require it. Both international and US accounting standards are adopting a forward-looking approach that will require lenders to forecast losses over the entire life of the loans on their books. While seemingly innocuous, both International Financial Reporting Standard Number 9 (IFRS 9) and the current expected credit loss (CECL) standard in the US have the potential to increase loss reserves significantly. In this chapter, we explore the forward-looking elements necessary to comply with
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