The New Impairment Model Under IFRS 9 and CECL
First published:
ISBN: 978-1-78272-347-9
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A CRO’s Perspective: Implementing, Operationalising and Governing of IFRS 9
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
IFRS 9 is a game changer. It requires that credit loss provisions be estimated using risk-sensitive, predictive models, which are effectively variants of A-IRB models. This requires significant effort for the risk function – from development and governance of these models, to quarterly production and analysis of credit provisions. This also further blurs the roles and responsibilities between the risk and finance functions. Provisions are part of the financial disclosures, which are fundamentally the finance function’s responsibility. But they also become increasingly “risk-based”, thereby utilising and requiring the risk function’s specific risk expertise. In this chapter we will discuss development, operationalisation, and governance of IFRS 9.
We will start with the evolving role of the risk function in, and necessary partnership between, the risk and finance functions. We will cover the governance of IFRS 9. We will then discuss the IFRS 9 production process and the necessary quarterly analysis to understand the results and develop the corresponding action plans proactively. We will cover how to develop a coherent rating system for multiple purposes. We will explain in detail
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