The New Impairment Model Under IFRS 9 and CECL
First published:
ISBN: 978-1-78272-347-9
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Integration into Regulatory Capital Frameworks
Adrian Docherty
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
Since banks are regulated institutions, the regulatory treatment of accounting provisions is crucial. This chapter looks at how bank capital regulations ought to fit with expected credit-loss provisioning regimes.
THE ROLE OF REGULATORY CAPITAL
Regulatory capital is an important notion for banks. It defines a bank’s solvency and ability to operate without jeopardising the stability of the financial system. It determines the scope for value creation by a bank, since profits can be distributed to shareholders only once regulatory capital norms are satisfied. And it forms an integral part of the capital-allocation process, which drives many of the financial decisions that the bank must make in its business.
Regulatory capital is also where accounting numbers – including expected credit loss (ECL) provisions under IFRS 9 or CECL – become real. Why? Because regulatory capital rules have the ability to transform spectral accounting numbers into concrete cashflow requirements. In other words, if ECL provisions flow through the accounts, diminishing accounting and also regulatory equity, which subsequently needs to be replenished out of earnings retention or capital-raising, then
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