Current Expected Credit Loss (CECL)

CRISIL provides banks around the world with support and automated modelling platforms for current expected credit loss (CECL). 

 

For banks, implementing effective CECL models is just the first step in establishing a robust risk management platform for credit losses from loans, held-to-maturity (HTM) bonds, available for sale (AFS) bonds, lease, guarantees, trade receivables, and debt securities. Following implementation, CECL models require regular validation, monitoring, and internal controls. This in turn requires the development of sound governance processes to ensure that the new models are functioning appropriately and in line with their intended use. 

 

CRISIL supports banks through every step in that process. We help clients meet CECL compliance requirements by providing gap analysis, data management, model development and documentation, model validation, model monitoring and maintenance, business analysis, and testing services. 

 

To do so, we leverage comprehensive knowledge of accounting standards such as FASB and International Accounting Standards Board (IASB), expertise in various regulations (like CCAR/DFAST, Basel norms), industry experience, industry-leading modelling platforms, proprietary templates, and execution-enabling frameworks. 

 

Our automated platform for the validation and documentation of regulatory and non-regulatory models can reduce downtime by up to 40%. The platform is easy to integrate, modular and fully transparent.

 

Solution Components

Data Management

  • Development data quality, relevance, validity, sufficiency
  • Managing end-to-end data and standardisation
    • Data sourcing validation
    • Proxy/synthetic
    • Data cleansing 
    • Data transformation
  • Definition of dependent and independent variables
  • Data reconciliation
  • Managing loan level vs. aggregate, borrower level, third party and macro data vs. gross level data
  • Adjust the vintages selected in historical data
  • Reasonable and supportable forecasts

Model Development

  • Data collection and portfolio analysis
  • Data cleansing, data preparation and data quality checks
  • Computing life of the loan for various portfolios
  • Life time loss modelling using PD/LGD/EAD based approach, roll rate, loss rate, aging and DCF approach
  • Leveraging existing models
  • Model performance testing
  • Sensitivity analysis and ongoing monitoring plan

Model Validation

  • Performing conceptual soundness like scoping, analyzing model theory, model assumptions and highlighted limitations
  • Validating approach, life of loan, segmentation/sampling and variable selection
  • Model estimation, challenger and benchmarking model development
  • Model output and result analysis
  • Model performance testing
  • Backtesting and sensitivity analysis
  • Validated GEN1 CECL models in 2017-2018

Model Monitoring and Maintenance

  • Designing and reviewing policies 
  • Model performance testing and override analysis
  • Stability analysis
    • Risk Parameter (PD/LGD/EAD) monitoring
    • Variable sensitivity analysis
  • Benchmarking
  • Trend analysis
  • Backtesting
  • Handling breaches or escalation resolutions
  • Reporting & Documentation

ECL Industry Benchmarking

  • Access to industry benchmarks (e.g. ECL basis) vis-a-vis industry peers 
  • Summary statistics, trend analysis, variance and impact analysis at risk component level
  • Reporting and documentation

Comprehensive Automation of Documentation

  • Compliance with internal requirements
  • Documenting theoretical framework, model assumption and limitations, model methodology, variable selection, assumption testing, results and output discussion etc.
  • Inbuilt documentation templates (e.g., Model development documentation; Model validation report; Vendor contingency plan; Ongoing model monitoring) 
  • Existing documentation review and remediation

Financial and Regulatory Reporting

  • Regulatory Interpretation
  • Regulatory Submissions
  • Regulatory Audits
  • Reconciliations
  • Supporting with playbooks and white papers for smooth regulatory submission

 

 

CRISIL EDGE

Knowledge Centre

 

 

 

Case Studies

Questions

 

Looking for high-end research and risk services? Reach out to us at:

 

United States
1-855-595-2100/
+1 646 292 3520

 

United Kingdom
+44 (0) 870 333 6336

 

 

India
+91 22 33 42 3000 /
+91 22 61 72 3000