CECL Consulting & Analysis

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Loss Forecasting Expertise

Premier Insights began providing consulting and analytical services related to loss forecasting and the new FSAB (Financial Accounting Standards Board) accounting standard in 2017. The new CECL (Current Expected Credit Losses) standard requires institutions to transition from the traditional incurred loss approach to one that requires a life-of-loan perspective which recognizes the entire potential losses inherent in the loan portfolio. One of the key points in forecasting losses are the “qualitative” factors used by institutions — how they are derived, quantified, and ultimately justified. This is an over-simplification, but these seemingly simplistic changes are much more impactful than they may seem (in addition to being largely misunderstood).

Even if the move to the more forward-looking, expected loss approach was not required as part of the new standard, the incurred loss approach would likely not be viable today. The ever-changing and increasingly turbulent credit environment has fostered an ever-moving target with respect to forecasting losses. A great deal of uncertainty remains with respect to the pandemic, and fiscal and monetary policy. This uncertainty, combined with cultural shifts and changes in technology that can impact entire industries literally overnight, continues to produce unprecedented volatility.

The result? Static models and approaches are no longer relevant. Institutions need dynamic solutions where adjustments can be made quickly along with the ability to assess multiple possibilities.

In short, banks will need — at a minimum — supplemental approaches to deal with a rapidly changing world. Premier Insights is dedicated to the continued enhancing of models designed to fit individual lenders as well as quantifying the impact of the given economic environment.

We welcome the opportunity to discuss how we can assist you with these complicated issues. Please contact us today.