CECL Historical Loss Misconceptions
Examples with real bank data
A misconception may have created a false sense of CECL readiness for some institutions. The notion that an institution will be CECL-compliant by utilizing a historical loss rate methodology extended from a current model is inconsistent with the requirements of a forward-looking model and will not yield a calculation that faithfully estimates an actual, life-of-loan loss at a portfolio or asset level. By nature the “expected loss,” or forward-looking element of the new standard, changes the application of the current “incurred loss” annualized historical loss rate methodology.
In this whitepaper:
- Historical loss methodology misconceptions
- Measuring the impact with real bank data
- Next steps for your institution