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Episode 2: Nonfinancial Companies: Slow economic recovery continues to strain credit quality

The effects of the COVID-19 pandemic on the economy are testing the new Current Expected Credit Loss reserving approach. While Day 1 impact and Q1 reserve changes varied widely across the banking industry, driven by portfolio composition, Q2 results are unidirectionally pointing to reserve builds. In our paper, CECL Build - Is it Enough?, our subject matter experts proposed a triangulation methodology to estimate a range for CECL estimates. Using a peer group composed of 14 banks, they test the approach to establish a range of estimates for Q2 2020 cohort results and suggest a useful tool for an effective challenge.

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