This document summarizes a presentation on the proposed Current Expected Credit Loss (CECL) model for calculating loan loss allowances. The presentation discusses how CECL differs from the existing incurred loss model by requiring lifetime loss estimates and consideration of forecasts. It notes CECL will likely increase allowances and their volatility. Operational challenges include developing life-of-loan loss data and forecasting economic conditions. Preparers are concerned about capital impacts while investors prefer CECL's timely loss recognition. Internal controls will need to adapt to CECL's increased complexity, subjectivity and regulatory scrutiny.
In response to the 2008 financial crisis, regulators and investors put pressure on the FASB and IASB to develop models that would require financial institutions to recognize losses earlier in the credit cycle. Measuring credit loss on Pools of loans...
Corporate Valuations “Techniques & Application”: A compilation of research oriented valuation articles.
Contents: Business valuation, Relative valuation, Sum of the parts valuation and value creation, ESOP valuation, Discounted Cash Flow Valuation, Enterprise Valuation etc.
In response to the 2008 financial crisis, regulators and investors put pressure on the FASB and IASB to develop models that would require financial institutions to recognize losses earlier in the credit cycle. Measuring credit loss on Pools of loans...
Corporate Valuations “Techniques & Application”: A compilation of research oriented valuation articles.
Contents: Business valuation, Relative valuation, Sum of the parts valuation and value creation, ESOP valuation, Discounted Cash Flow Valuation, Enterprise Valuation etc.
Interest rate risk management for banks under Basel II, presentation by Christine Brown, Department of Finance , The University of Melbourne, Shanghai, December 8-12, 2008
Watch out full video on youtube-
https://youtu.be/zBUSzKnK9bw
Principles of Credit Lending
1. Safety
2. Liquidity
3.Spread
4. Security
5. Purpose
6. Profitability
7. Policy Validation
Thank You For Watching
Subscribe to DevTech Finance
Counterparty Credit Risk | Evolution of
the standardised approach to determine the EAD of counterparties
This article focuses on Counterparty Credit Risk. The topic of this article is on the evolution and need of standardised method for the assessment of Exposure at Default of counterparties and their Capitalisation under regulatory requirements.
This presentation provides complete study ofcredit risk management,how it was performed in yester years ,how it is taken care nowadays and what is the road ahead in future
RISK & RETURN UNDER SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT IS DESCRIBED, ALL THE DETAILED EXPLANATION OF TOPIC IS GIVEN UNDER THIS DOCUMENT.
CAN ALSO REFERRED FOR FINANCIAL MANAGEMENT, INSURANCE.
This slide set is a work in progress and is embedded in my Principles of Finance course that I teach to computer scientists and engineers.
http://awesome.weebly.com/
Interest rate risk management for banks under Basel II, presentation by Christine Brown, Department of Finance , The University of Melbourne, Shanghai, December 8-12, 2008
Watch out full video on youtube-
https://youtu.be/zBUSzKnK9bw
Principles of Credit Lending
1. Safety
2. Liquidity
3.Spread
4. Security
5. Purpose
6. Profitability
7. Policy Validation
Thank You For Watching
Subscribe to DevTech Finance
Counterparty Credit Risk | Evolution of
the standardised approach to determine the EAD of counterparties
This article focuses on Counterparty Credit Risk. The topic of this article is on the evolution and need of standardised method for the assessment of Exposure at Default of counterparties and their Capitalisation under regulatory requirements.
This presentation provides complete study ofcredit risk management,how it was performed in yester years ,how it is taken care nowadays and what is the road ahead in future
RISK & RETURN UNDER SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT IS DESCRIBED, ALL THE DETAILED EXPLANATION OF TOPIC IS GIVEN UNDER THIS DOCUMENT.
CAN ALSO REFERRED FOR FINANCIAL MANAGEMENT, INSURANCE.
This slide set is a work in progress and is embedded in my Principles of Finance course that I teach to computer scientists and engineers.
http://awesome.weebly.com/
Financial institutions face implementation of a new accounting requirement that was issued in June of 216 by the Financial Accounting Standards Board (FASB), Financial Instruments – Credit Losses (Topic 326) commonly referred to as “CECL.” This new standard will become effective in 2020 for SEC filers and 2021 for all other entities – but compliance requires significant review and potential change in many aspects of governance, risk management, credit models and other aspects of operations, so banks must prepare well before the implementation date to be ready by then. CECL, or current expected credit losses, represents a major change in how banks will be expected to estimate losses in the allowance for loan and lease losses (ALLL). This presentation, provided at a Kansas Bankers Association meeting in November 2016, gives an overview of CECL and how to prepare for compliance with it.
Credit Unions will have to alter they way they account for credit losses as part of their allowance for loan and lease losses, assuming the FASB finalizes the CECL accounting standard in Q1 of 2016. In this presentation, learn what is changing for credit unions' ALLL and how to prepare.
The FASB is expected to release its CECL or Current Expected Credit Losses Model in Q1 of 2016. The new accounting standard will impact the way banks calculate their allowance for loan and lease losses, forcing institutions to make some procedural changes to the way they account for credit risk.
Risk Rating Improvements for the ALLL in Banks and Credit UnionsLibby Bierman
Risk Ratings will play a pivotal role under CECL at banks and credit unions. In this presentation, find out how to improve risk rating systems, including PD/LGD or Probability of Default as well as internal matrices.
Managing Credit Risk
• A major part of the business of financial institutions is making loans,
and the major risk with loans is that the borrow will not repay.
• Credit risk is the risk that a borrower will not repay a loan according
to the terms of the loan, either defaulting entirely or making late
payments of interest or principal.
• Concepts of adverse selection and moral hazard provides framework
to understand the principles that is used to minimize credit risk, yet
make successful loans.
The CECL Workshop Series Part II: Vintage AnalysisLibby Bierman
This webinar covered concerns with methodologies as institutions prepare for the FASB's proposed current expected credit loss (CECL) model. This presentation covered the importance of scenario building, choosing methodologies to test, and gave a deep dive into vintage analysis CECL scenarios.
CECL Methodology Series for Off-Balance-Sheet Credit ExposuresLibby Bierman
Sageworks Neekis Hammond walks attendees through the calculation and segmentation of liabilities and reserves as they may apply to this part of the portfolio under the CECL model.
Recording: http://web.sageworks.com/cecl-methodology-webinar-series/
CECL Methodology Series for Consumer Loan PoolsLibby Bierman
Recording: http://web.sageworks.com/cecl-methodology-webinar-series/
In this webinar series, Sageworks consultants review the different loss rate methodologies that will be available for banks and credit unions under CECL and their applicability for different loan segments. In this session, they look at consumer loan pools and accounting for them under CECL.
Capital One presents on lending opportunities at the Washington, DC Economic Partnership's (WDCEP) Entrepreneur Roadmap Starting a Franchise seminar (5/14/14).
Infocomm/Corelytics: Getting a Bank Loan (Webinar) - With Key Bank guest Kris Fuehr
There are new realities in obtaining funding. Learn how to get a loan, types of lenders, ratios that matter most and how to build financial strength by watching trends, predicting your future and getting help when you need it. Frank Coker, Corelytics CEO & Special Guest, Don Brown, Vice President, Key Bank.
Tracking money and fund flows from one financial entity to another will lead to a long chain or network of entities spread all over the world. Along with the funds financial risks also flow across the network. They can have a devastating cascading effect when one entity collapses. The financial melt down of global markets in 2007-08 was precipitated by failure in such networks. We present the dimensions and complexity in modelling fund flows in these networks.
The allocation of executive compensation resources is being scrutinized by internal and external forces. Regulations, board governance issues, and the lower margins require new thought processes on the various pieces of the compensation puzzle and how they fit together.
Air date: Oct. 15, 2018
Recording available at http://www.mhmcpa.com
Lease accounting underwent a major revision with the issuance of the Financial Accounting Standards Board’s Accounting Standards Update 2016-02, Leases (Topic 842). The update made adjustments to the recording of leases and this course will specifically discuss the changes in lessor accounting. We'll also discuss where lessees may struggle with implementation and where they may look for help from lessors in these lease contracts.
CBIZ and MHM are pleased to invite you to our 2018 Executive Education Series™ online training courses. This webinar-based training is designed to educate and inform our clients and the public on complex accounting and tax subject matters and current events. Continuing Professional Education (CPE) credit will be offered.
Online registration and more details about these free courses can be found at cbiz.com or mhmcpa.com.
Air date: Oct. 2, 2018
Recording available at http://www.mhmcpa.com
This quarterly webinar will bring you up-to-date on hot topics, technical matters and current events impacting financial reporting and the accounting profession.
Professionals from CBIZ and MHM will discuss recent happenings at the Financial Accounting Standards Board, American Institute of Certified Public Accountants, Securities and Exchange Commission, Public Company Accounting Oversight Board and other relevant governance bodies. We will also touch on recent tax changes and proposed legislation.
Air date: Oct. 1, 2018
Recording available at http://www.mhmcpa.com
Public companies are adopting the new revenue recognition standard under ASC Topic 606 for 2018, and private companies won’t be far behind. Our webinar will cover lessons learned from early adopters and steps your organization can take now to make the necessary changes and process updates.
Air date: Sept. 28, 2018
Recording available at http://www.mhmcpa.com
New revenue recognition standards under ASC Topic 606 and changes to ASC Topic 958 are taking effect, and not-for-profit organizations should be getting ready. Tax-exempt entities will need to consider transactions other than contributions and investment returns in order to correctly record revenue under the new accounting criteria. Not-for-profits must also consider the guidance that was recently released clarifying how the new standards relate to contributions made and received.
In our webinar, we will discuss how not-for-profit organizations can prepare for the changes, which are effective for years ended December 31, 2018 for conduit debt issuers and for years ended December 31, 2019 for others.
Air date: Sept. 25, 2018
Recording at http://www.mhmcpa.com
Lease accounting underwent a major revision with the issuance of the Financial Accounting Standards Board’s Accounting Standards Update 2016-02, Leases (Topic 842). The update made adjustments to lessee and lessor accounting. This course will discuss the changes and the challenges in implementation as well as the frequently asked questions of professionals concerning the changes.
Air date: Aug. 15, 2018
Recording at http://www.mhmcpa.com
The 20% QBI deduction under Section 199A affects all businesses other than C corporations. The pervasive importance of this complicated new deduction has attracted extraordinary interest in IRS regulations to help resolve many ambiguities in the law. Join us as we unpack these new and anxiously awaited regulations.
Original air date: Aug. 14, 2018
Recording available at http://www.mhmcpa.com
Administrative, legislative and judicial updates emerge from Washington each quarter that may affect your business. Our free, quarterly webinars provide insight to help prepare you for the tax developments of the most interest to you, your business and other interested stakeholders.
Our Eye on Washington webinars assist CEOs, CFOs, financial executives and advisors, and other interested parties in navigating the complex tax environment. From federal tax reform to IRS guidance and healthcare reform, topics covered will provide the up-to-date information you need to help you plan for the future.
The FASB recently issued guidance to make transitioning to and applying the new leasing standard easier. Accounting Standards Update 2018-11, Leases (Topic 842) Targeted Improvements (ASU 2018-11) addresses questions related to the initial adoption of the standard in comparative periods, and for lessor accounting, separating lease and nonlease components of a contract. Changes to the adoption requirements will be particularly important for SEC filers as they prepare their third and fourth quarter filings.
Sometimes a revision to an accounting standard will have an impact that takes a while to become apparent to the financial reporting community. Accounting standard changes tend to affect financial statements, and so changes to the financial statements may affect the business operations that rely on them, such as lending arrangements.
Original air date: July 2, 2018
Recording at http://www.mhmcpa.com
This quarterly webinar will bring you up-to-date on hot topics, technical matters and current events impacting financial reporting and the accounting profession.
Professionals from CBIZ and MHM will discuss recent happenings at the Financial Accounting Standards Board, American Institute of Certified Public Accountants, Securities and Exchange Commission, Public Company Accounting Oversight Board and other relevant governance bodies. We will also touch on recent tax changes and proposed legislation.
On June 21, 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions received and Contributions Made, which provides accounting guidance around contributions of cash and other assets received and made by not-for-profit organizations and business enterprises.
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-07 Compensation—Stock Compensation (Topic 718) as part of its Simplification Initiative to reduce complexity when accounting for share-based payments to non-employees.
The areas for simplification in ASU 2018-07 involve several aspects of the accounting for non-employee share-based payment transactions resulting from expanding the scope of Accounting Standards Codification (ASC) Topic 718, Compensation—Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-employees and aligning it with the accounting for share-based payments to employees, with certain exceptions.
A new accounting standard will soon be coming that has the potential to simply the application of the consolidation guidance to private companies.
The FASB recently voted to affirm decisions made in an exposure draft issued last year modifying the variable interest entity (VIE) consolidation model.
Original air date: June 6, 2018
Recording available at http://www.mhmcpa.com
With so many players involved, the international tax landscape is ever-changing. Staying up-to-date on recent developments, trends and areas of regulatory scrutiny are critical to your planning.
Our webinar will recap hot topics, technical matters and other current events that have a bearing on international tax planning and compliance. We will highlight emerging best practices and other tips to help you navigate through these areas.
Original air date: June 5, 2018
Recording at http://www.mhmcpa.com
The new partnership audit rules are in play for tax years beginning after Dec. 31, 2017. There is still time to amend partnership and LLC agreements, as will be necessary in nearly all cases. Certain critical aspects of the new rules were clarified in proposed regulations that the IRS published recently. As the IRS works to finalize these regulations later this year, businesses should prepare for the potential impact of these regulations, which will be explored in this webcast.
Original air date: May 17, 2018
Recording at http://www.mhmcpa.com
Service businesses that transact business across state lines and nationally are subject to state income taxes in many jurisdictions. The tax laws for each state are different, including the manner in which states determine the location of sales for apportionment purposes. Service businesses must contend with varying rules to determine the state to which sales revenues should be assigned.
This webinar will examine the common approaches utilized by state taxing jurisdictions to source service revenue in order to provide an overview of the principles involved.
Original air date: May 15, 2018
Recording available at http://www.mhmcpa.com
Administrative, legislative and judicial updates emerge from Washington each quarter that may affect your business. Our free, quarterly webinars provide insight to help prepare you for the tax developments of the most interest to you, your business and other interested stakeholders.
Our Eye on Washington webinars assist CEOs, CFOs, financial executives and advisors, and other interested parties in navigating the complex tax environment. From federal tax reform to IRS guidance and healthcare reform, topics covered will provide the up-to-date information you need to help you plan for the future.
Regardless of size or type of operation, all companies can benefit from having an audit committee to help with corporate governance strategies and, ultimately, provide the best chance to ensure the organization’s success. In the case of public companies, the Sarbanes-Oxley Act of 2002 (SOX), makes it a requirement to have an audit committee that follows several key mandates for reporting annual financial statements. Private sector companies can benefit from audit committee oversight, as well.
Original air date: Dec. 20, 2017
Recording available at http://www.mhmcpa.com
A number of updates from the SEC and the Financial Accounting Standards Board (FASB) have had an effect on public company accounting and SEC reporting. The AICPA Conference on Current SEC and PCAOB Developments, held December 4-6 in Washington D.C., highlights some of the key topics that will have an impact on SEC registrants and other public business entities moving forward.
Members of our team who attended the conference will provide a debriefing on the key points, tips and other guidance shared at the conference.
This presentation poster infographic delves into the multifaceted impacts of globalization through the lens of Nike, a prominent global brand. It explores how globalization has reshaped Nike's supply chain, marketing strategies, and cultural influence worldwide, examining both the benefits and challenges associated with its global expansion.
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when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the what'sapp contact of my personal pi vendor
+12349014282
Lecture slide titled Fraud Risk Mitigation, Webinar Lecture Delivered at the Society for West African Internal Audit Practitioners (SWAIAP) on Wednesday, November 8, 2023.
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the what'sapp number.
+12349014282
2. Elemental Economics - Mineral demand.pdfNeal Brewster
After this second you should be able to: Explain the main determinants of demand for any mineral product, and their relative importance; recognise and explain how demand for any product is likely to change with economic activity; recognise and explain the roles of technology and relative prices in influencing demand; be able to explain the differences between the rates of growth of demand for different products.
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the what'sapp number of my personal pi merchant who i trade pi with.
Message: +12349014282 VIA Whatsapp.
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
3. About Mayer Hoffman McCann P.C. and CBIZ
Mayer Hoffman McCann P.C., is an independent public accounting firm
with more than 280 shareholders in more than 35 offices. MHM
specializes in attest services for mid-market and growing businesses,
with a specialty practice devoted to financial institutions. MHM is
strategically associated with CBIZ. With offices in major cities
throughout the United States, CBIZ is one of the nations leading
providers of outsourced business services, including accounting and
tax, internal audit, risk management, and a wide range of consulting
services. Together, CBIZ and Mayer Hoffman McCann P.C. are one of
the top accounting providers in the country.
4. Learning Objectives
• Gain an understanding of the CECL model and impact on the
Allowance for Loan Losses calculation.
• Understand the potential impact of the CECL on Credit Union
financial statements upon adoption.
• Understand the differences between the current allowance for loan
losses accounting model and the proposed CECL model.
5. Why is FASB proposing the CECL Model?
• Before the global economic crisis began in 2008, both the FASB and
International Accounting Standards Board (IASB) began a joint
project to improve accounting for financial instruments.
• In the aftermath of the global economic crisis, the overstatement of
assets caused by a delayed recognition of credit losses was cited as
a weakness under current accounting standards.
6. Incurred Loss Model (Current Method)
• The incurred loss model generally:
– Delays recognition until the loss has been incurred.
– Expected future losses are not recorded.
– Losses must be reasonably estimable, i.e. the onset
of a national recession may not promote a reasonably
estimable increase in the allowance for loan losses
under the existing method.
– The incurred loss model estimates losses for loans
likely to default in the next 12 months
7. Current Expected Credit Loss Model (Proposed
Method)
• Forward-looking analysis: The CECL model would require an
institution to utilize future information and supportable forecasts to
estimate the allowance.
• Removal of “probable” threshold: CECL requires that an
institution forego the worst-case or best-case scenario and instead
evaluate the possibility that a loss exists or that it does not.
• Loss horizon changes: Requires an institution to estimate losses
over the lifetime of the loan for all loans. This would likely expand
the loss horizons that an institution uses for estimating an
allowance for its non-impaired loans and will likely cause the
allowance for non-impaired assets to rise from current levels.
8. Current Expected Credit Loss (CECL) Model
Main Provisions
• Impairment would be based on the current
estimate of contractual cash flows not
expected to be collected on financial assets
held as of the reporting date.
9. CECL vs. ASC 450-20 (FAS 5)
• The general allowance change will affect
virtually all institutions.
• Allowance will be current estimate of expected
cash flows not expected to be received:
– Recognizes expected credit risks
– Must consider at least two possible outcomes
– Requires consideration of a broader range of reasonable and
supportable information
– Removes incurred concept
– Removes probable threshold
11. Modeling – How will it Work?
FAS 5 Approach:
History
Qualitive
Adjustment
CECL Lifetime losses approach:
History Forecast Adjustment
The difference is in the definition of the historical period and the
judgmental approach
12. Modeling Approaches to CECL (Example from Exposure Draft)
Year of
Origination Year 1 Year 2 Year 3 Year 4 Total
20X1 0.50% 1.20% 1.40% 0.30% 3.40%
20X2 0.60% 1.20% 1.60% 0.50% 3.90%
20X3 0.40% 1.10% 1.50% 0.30% 3.30%
20X4 0.60% 1.10% 1.50% 0.40% 3.60%
20X5 0.50% 1.30% 1.70% 0.50% 4.00%
20X6 0.70% 1.50% 1.80%
20X7 0.80% 1.40%
20X8 0.70%
20X9
Loss Experience in Years Following Origination
13. CECL Forecast Assumptions
• Estimate of expected credit losses based on:
– Past events
– Historical loss experience
– Current conditions
– Reasonable and supportable forecasts
– Borrower credit worthiness
– Forecasts of expected credit losses
– Current point and forecast direction of economic
cycle.
– Current and expected economic conditions
14. Modeling Approaches to CECL (End Result)
Year of
Origination Year 1 Year 2 Year 3 Year 4 Total
20X1 0.50% 1.20% 1.40% 0.30% 3.40%
20X2 0.60% 1.20% 1.60% 0.50% 3.90%
20X3 0.40% 1.10% 1.50% 0.30% 3.30%
20X4 0.60% 1.10% 1.50% 0.40% 3.60%
20X5 0.50% 1.30% 1.70% 0.50% 4.00%
20X6 0.70% 1.50% 1.80% 0.60% 4.60%
20X7 0.80% 1.40% 1.90% 0.70% 4.80%
20X8 0.70% 1.50% 2.00% 0.80% 5.00%
20X9 0.80% 1.50% 2.00% 0.80% 5.10%
Loss Experience in Years Following Origination
16. What to Expect – How Will Allowance Behave?
• CECL is counter-cyclical
• CECL is life of loan, ASC 450-20 is not
• CECL reserves will be higher, maybe
significantly higher.
• CECL removes probable threshold – (You will
have life of loan allowance on Day 1)
• CECL will have more subjectivity
17. Feedback received by FASB
• By nearly 3-1 margin, investors and other users prefer all
expected credit losses.
• Most preparers prefer a model that recognizes only
some of the expected credit losses or maintains a
threshold that must be met before all expected credit
losses are recognized.
18. Executive summary of investor views
• Majority of investors commented that all expected credit
losses should be recognized at origination.
• Past, current, and reasonable and supportable forecasts
should be used to develop the loss estimate.
• Would like to see more robust disclosures on credit
losses (i.e. expected and actual performance of assets
by vintage over time and management’s ability to
forecast expected losses).
19. Executive summary of preparer views
• Majority of preparers do not support the proposed update.
• Prefer a model that either recognizes some of the expected
credit losses or maintains a threshold that must be met
before all expected losses are recognized.
• Concerned about impact on regulatory capital.
• Believe it will result in understated net asset value of
financial asset on “Day 1”
• Fails to “match” the timing of recognition of credit loss
expense with compensation received for credit loss
(interest income).
20. Investors’ objectives with regard to credit losses
• Concerned about the delayed recognition of losses
associated with the current accounting standard and
adequacy of reserve estimates.
• Investors support removal of the “probable” threshold for
loss recognition because of the belief that this threshold
has artificially delayed loss recognition.
• All expected losses should be recognized at origination,
thereby providing “capital” set aside to absorb future
losses.
21. Investors objectives with regard to credit losses
• Allowance based on historical credit losses, coupled with
information about current conditions and reasonable and
supportable forecasts.
• Regardless of credit loss recognition model used,
investors would like more robust disclosures on the
credit loss reserve.
22. Operational concerns
• Respondents stated that forecasting and “predicting”
economic conditions over remaining life of loan would be
challenging (if not impossible).
• Concerns that management’s estimate of expected
credit losses will be subject to additional audit and
regulatory scrutiny.
• Historical credit loss information over “life of loan” is not
currently tracked and measured.
24. Misunderstandings regarding life of loan
• FASB clarified that an entity is not expected to forecast
and predict economic conditions over the entire life of
the asset; rather, it is expected to update historical loss
experience for current conditions and reasonable and
supportable forecasts about the future.
25. Operational concerns specific to credit unions
• Significant costs associated with making a life of loan
estimate of expected credit losses.
• Many credit unions currently use annual loss rates in the
allowance measurement and do not have access to
historical life-of-loan credit loss data.
• The proposed update would not allow an annualized loss
rate and require entities to develop systems to track and
calculate historical loss experience that is not currently
tracked today.
26. Capital concerns
• Day 1 recognition of credit losses will adversely impact
capital, and discourage lending.
• Credit Union capital is only measured by the ratio of net
worth to total assets, which would be negatively affected
by the likely increase in the allowance for loan losses.
27. So What is the Impact Going to Be?
• It depends:
– When is it adopted?
– What is in your portfolio?
– What is your method?
– What is your model?
– What is your forecast?
– What period do you use for history?
– What assumptions do you use?
28. Internal Control Considerations
• Forward-looking view and subjectivity will be
challenging to support
• Complex, material estimate will require strong
internal governance and controls
• Bigger change for smaller credit unions
• Model risk management need will increase
• More regulatory review likely
29. Conclusion
• CECL will be a big operational change for
many credit unions
• The level and behavior of reserves will change
• The materiality of the allowance and the
subjectivity inherent in forward-looking
estimates will pose auditing and governance
challenges.
30. Questions?
• If you have additional questions after this
session concludes, stop by our booth.