The New Impairment Model Under IFRS 9 and CECL
First published:
ISBN: 978-1-78272-347-9
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The New Impairment Model: Governance and Validation
Damien Burke
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
Internal models, whether developed to help acquire new customers or manage existing ones (operational models), calculate losses on the lending book (impairment models) or to calculate regulatory capital to allow for unexpected losses (IRB models), are designed to have a level of complexity commensurate with the sophistication of the organisation they have been developed for and to be in line with accounting (impairment) or regulatory (IRB) standards pertaining to these. So, while the challenge is similar, the aim of these rules is quite different, so different approaches may be considered and impairment needs to be calculated under the same rule set for all financial institutions, whereas the capital rule set is dependent on the use of models, so validation may be new to some organisations.
They are a tool to enable organisations to make better decisions and to meet their responsibilities to relevant bodies in a more efficient and effective manner, not to absolve those organisations from those responsibilities. This means that the role of the validation function and the governance structure that surrounds it is not to pass or fail models, but to understand their structure, the
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