Negative Forward-Looking Adjustments
When you see a negative forward-looking adjustment in the CECL model, it means the projected loss rate in the near-term future for that pool is lower than the average historical loss rate. This is not unusual, especially when the lookback period goes back to the...
Forward Looking Economic Indicators
In addition to calculating lifetime loss rates, one of the biggest new changes FASB added to CECL is the requirement to use objective economic data to project losses into the “foreseeable future.” CECLcomp provides this calculation for you in the “Forward Looking...
CECL Lookback Assumption
One of the reasons that CECL was created by FASB was to force banks to be quicker to adapt to changing market conditions. They wanted banks to be faster to increase their reserves in worsening credit cycles and lower their reserves during improving credit cycles. ...
CECL Custom Factor Considerations
Many banks have run their CECL and ALLL models in parallel to observe variance trends in the calculated portions (historical loss rates, remaining lives, forward-looking adjustments). While there are many assumptions associated with these calculations, which will be...
CECL SCALE vs WARM method
As the CECL implementation deadline looms, the WARM method and SCALE method appear to be the most viable options for many community-based financial institutions. While both methodologies have the advantage of being easier to understand and less expensive than...