The New Impairment Model Under IFRS 9 and CECL
First published:
ISBN: 978-1-78272-347-9
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The New Era of Expected Credit Loss Provisioning
Benjamin H Cohen and Gerald A Edwards, Jr
Introduction
The New Era of Expected Credit Loss Provisioning
The Marking of CECL Standard: Comments and Reflections
Sources of Modelling Variation in CECL Allowances
A CRO’s Perspective: Implementing, Operationalising and Governing of IFRS 9
Implementing Both IFRS 9 and CECL
Macroeconomic Forecasting and Scenario Design for IFRS 9 and CECL
Technology Solutions for CECL and IFRS 9
Implementing IFRS 9: Quantifying Expected Credit Losses in Retail and Wholesale Portfolios
From Incurred Loss to CECL: Historical Perspectives and Practical Guidance
Loss Forecasting Retail and Commercial Portfolios for CECL
Implementing CECL at Small and Community Banks
The New Impairment Model: Audit and Disclosure Challenges
The New Impairment Model: Governance and Validation
The Impacts of CECL: Empirical Assessments and Implications
How the New Impairment Model Could Affect Banks’ Business Models
Measuring and Managing the Impact of New Impairment Models on Dynamics in Allowance, Earnings and Bank Capital
Integration into Regulatory Capital Frameworks
Implications for Equity and Debt Investors
The global financial crisis (GFC) of 2007–9 highlighted the systemic costs of delayed recognition of credit losses by banks and other lenders. Pre-crisis, application of the prevailing standards was seen as having prevented banks from provisioning appropriately for credit losses likely to arise from emerging risks. These delays resulted in the recognition of credit losses that were widely regarded as “too little, too late”. Furthermore, questions were raised about whether provisioning models, along with the effect of provisioning on regulatory capital levels, contributed to procyclicality by spurring excessive lending during the boom and forcing a sharp reduction in the subsequent bust.
Following the crisis, the G20 leaders, investors, regulatory bodies and prudential authorities called for action by accounting standard setters to improve loan-loss provisioning standards and practices. In response, the International Accounting Standards Board (IASB) in 2014 published IFRS 9, “Financial Instruments”, which includes a new standard for loan-loss provisioning based on “expected credit losses” (ECL) (IASB 2014a).11 IFRS 9 also includes new rules for classification and measurement of
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