Pools, Correlations and Methods at the Core of CECL Compliance

With potential increases in economic volatility, understanding credit exposure will be critically important to remaining competitive and profitable. This paper explores creating pools, establishing correlations to external metrics and identifying methods for calculating loss rates.

One of the most significant changes affecting financial institutions in recent years is the FASB pronouncement regarding evaluation of credit risk. Current Expected Credit Losses (CECL) requires banks, credit unions and any firms with instruments exposed to potential credit loss estimate what those future losses may be. While some regulations affecting financial institutions may change or be eliminated as political winds change, CECL is not regulatory legislation. Changes are always possible, but CECL is much less likely to be altered for political reasons.

Prologue™ Credit Loss Manager from Fiserv helps address the challenges of CECL compliance with confidence. The solution can help your institution:

  • Create and validate methodologies prior to standards implementation
  • Collect a vast array of historical data
  • Pool capabilities to allow for tracking at more detailed levels to improve performance
  • Use different methodologies for different pools
  • Calculate historic loss rate at pool level and the projected ALLL at the pool and aggregate levels
  • Country
  • United States
  • Solution
  • Financial Performance & Risk Management
  • Published
  • August 2017

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