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Portfolio Risk & CECL CECL Models Incurred Loss Stress Testing

ALLL & CECL: A Harmonious Risk Management Approach

A harmonious risk management approach includes current and forward-looking expectations for the volume and timing of credit losses for functions like pricing, budgeting, allowance preparation, and stress testing. Estimating losses in an environment that differs from recent historical experience in a consistent, quantitatively justified manner requires the use of some form of modeling approach.

While the application of those models and underlying assumptions vary by activity, the models themselves should still reflect the institution’s best estimate and should not consider any reliable inputs “off limits” during development. Taking this into consideration will help to develop a harmonious risk management approach at your institution.

Download to learn more about:

  • How to develop credit models
  • Qualitative adjustments for incurred loss
  • Quantitative frameworks for current expected credit loss (CECL) applications
  • Other applications for stress testing and planning