credit risk

As Fast as You Can

The implementation window for the new Current Expected Credit Loss (CECL) standard may seem plenty big enough, but there are loads of decisions to be made, such as “how will we calculate this?” “Decide on methodology and start implementing as fast as you can,” advised Masha Muzyka, Senior Director, Regulatory and Accounting Solutions at Moody’s Analytics. She was part of a round-table discussion, held on January 10, 2018, about the transition to CECL. The webcast was organized by the Global Association of Risk Professionals (GARP). The new CECL standard will bring significant changes, such as a spike in earnings volatility. […]

Challenges to modelling

Modelling the Current Expected Credit Loss (CECL) may present problems to some banks. Possibly a bank is collecting data for annualized charge-off rates and “how would that inform someone as to the loss rate over the lifetime of the portfolio?” asked Michael Gullette, SVP, Tax and Accounting at the American Bankers Association. The question is whether a bank has enough data of the right kind to see trends and relationships. “And if you have the data, what is the quality?” Gullette said. He was part of a round-table discussion about the transition to CECL that was webcast by the Global […]

Never too early to start

The “reasonable and supportable” clause of the new Current Expected Credit Loss (CECL) standard “is the most hotly debated part” of the regulation, according to Cristian deRitis, Senior Director, Consumer Credit Analytics at Moody’s Analytics. He was part of a round-table discussion about the transition to CECL that was webcast by the Global Association of Risk Professionals (GARP) on January 10, 2018. CECL is the new credit impairment standard under Financial Accounting Standards Board (FASB). “Auditors are grappling with what ‘reasonable and supportable’ means, too,” he added. For best practice in terms of modelling credit risk, the phrase boils down to whether […]

Early Warning Signs

“Overall, the energy sector remains stressed,” said Irina Baron, Associate Director at Moody’s Analytics. Baron was the third and final panellist discussing new dynamics in the handling of financial risk management in the energy sector at a webinar sponsored by the Global Association of Risk Professionals on November 29, 2017. Based on expected default frequency (EDF), 75 percent of US publicly-traded companies in the energy sector are not investment-grade risks. “Agency ratings give us a sense of which firms are more likely to default,” she noted. The drawback is that the realized default rate cannot be forecast. However, the expected […]

Managing Risk in Volatile Sector

Market observers have conflicting expectations, especially in the highly changeable energy sector. How can a talented analyst stay on top of it? Mehna Raissi, Senior Director at Moody’s Analytics, was the second of three panellists discussing new dynamics in the handling of financial risk management in the energy sector at a webinar sponsored by the Global Association of Risk Professionals on November 29, 2017. “Between 2008 and 2013, we were worried about rising oil prices,” Raissi said. However, “in the second half of 2014, oil prices came down and the headlines read: Recession caused by low oil prices.” Oil prices […]

New Dynamics in Energy Sector

How can financial risk be measured and managed in a volatile industry such as the energy sector? What are some of the common industry challenges? Due to low commodity prices and technological changes in the industry, there are new dynamics in the handling of financial risk management in the energy sector. Three speakers addressed specific changes in a webinar sponsored by the Global Association of Risk Professionals on November 29, 2017. “Sometimes the things we think we know, we don’t,” said Gordon Goodman of NRG Energy, the first of three speakers at the webinar. Goodman’s claim to fame is publication […]

Myths of CECL

The time for proper accounting of credit impairment is running out. How prepared is your team? Do you even know what the biggest concern of the auditors will be? This was the call to action voiced by Tom Caragher, Senior Product Manager of Risk and Performance at Fiserv, a US provider of financial services technology on October 26, 2017. He spoke about implementation of current expected credit losses (CECL) at a webinar sponsored by the Global Association of Risk Professionals. (Note that CECL is the impairment standard under Financial Accounting Standards Board (FASB).) “When it comes to CECL, there are many […]

Clash of Titans

In the wake of the financial crisis, the two Titans that create accounting standards tried to hammer out agreement over how to account for impairment of loans. These bodies are the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). “FASB and IASB share the same goal but unfortunately were not able to agree on the same standard,” said Emil Lopez, Director of Risk Measurement at Moody’s Analytics. FASB calls their impairment standard “current expected credit losses” (CECL) whereas IASB deals with impairment and expected losses in their International Financial Reporting Standards as IFRS 9. Lopez was […]

Move Beyond Spreadsheets

Is your firm ready? Financial institutions are seeking answers that will help them plan a roadmap for implementation of the new current expected credit losses (CECL) standard issued by the Financial Accounting Standards Board (FASB). “The runway looks long but firms need to start to prepare now,” said Anna Krayn, Team Lead for Impairment, Capital Planning and Stress Testing at Moody’s Analytics. She was the second of three panellists at the webinar “The Long Road to CECL” sponsored by the Global Association of Risk Professionals on September 8, 2016. “Now is the time to educate, organize and govern, quantify, and […]

Long Road, Many Challenges

Nothing like a financial crisis to show the rough spots in estimation of losses. “Credit losses weren’t being recognized on a timely basis,” and the impairment accounting models were complex and varied widely, according to Kevin Guckian, Partner, National Professional Practice at Ernst &Young. He was the first of three panellists at the webinar “The Long Road to CECL” sponsored by the Global Association of Risk Professionals on September 8, 2016. “FASB’s final standard should accelerate recognition of credit losses,” Guckian noted, referring to the current expected credit losses (CECL) standard newly adopted by the Financial Accounting Standards Board. He […]