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The most popular CECL, ALM, & portfolio risk blogs of the year

Kate Randazzo
December 22, 2023
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The most-read portfolio risk blogs in 2023

Probability of default, CECL model validation, and stress testing were among Abrigo's top blogs on ALM, CECL, and portfolio risk this year. 

You might also like this webinar, "Unraveling risk rating: Making sense of your best early warning tool."

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Abrigo's top risk management articles

The risk management blogs banks and credit unions are reading

Probability of default, CECL model validation, and CRE risk are hot topics that risk management and accounting professionals will be tracking in the coming months. Abrigo's blog covered these and other subjects that are likely to stay in focus in the coming months.

Abrigo's most popular risk management blogs over the last 12 months cover topics that continue to catch the attention of professionals and regulators. Those read most often in the past year include several that offer practical advice for operating ALM and CECL models. Others explain common and emerging stress testing methods and interest rate forecasts that can help accounting and risk professionals in their day-to-day decision making. 

Here are Abrigo’s 10 top ALM, CECL, and portfolio risk blogs in 2023.

 

Click the header next to each number to visit the corresponding top blog post.

Probability of default and how it's used for expected loss

Probability of Default/Loss Given Default analysis is a method used by larger institutions to calculate expected loss. A probability of default (PD) is already assigned to a specific risk measure, per guidance, and represents the percentage expected to default. Loss given default (LGD) expresses the expected loss as a percentage and is unique to the industry or segment. To learn more about the PD/LGD approach and the pros and cons of using it under the Current Expected Credit Loss Model (CECL),  download this infographic, CECL Methodologies: Pros and Cons for Your Portfolio, or read about how one financial institution incorporated PD/LGD into its allowance calculation. 

Purchased financial assets in banking under CECL

This year, the Financial Accounting Standards Board (FASB) continued its earlier discussions on the accounting treatment for acquired financial assets that are within the scope of  CECL. Several tentative FASB decisions, if finalized, will have an impact on financial institutions that have been acquisitive in recent years as well as those planning for future deals. Key tentative decisions and timelines are shown in this blog. The FASB’s description of proposed changes can be found here

10 Management reports banks & credit unions should run NOW

This year, regulators emphasized financial institutions' responsibility to provide leaders with information on key areas of planning, operations, and risk management. So how can banks and credit unions quickly spot warning signs so they can act during volatile economic, industry, and institutional conditions? Read this blog for ten key reports on capital, growth, and liquidity that can help financial institutions identify increased risk and shape strategy in tricky conditions. 

Interest rate forecasts in today’s market: Planning your ALM position

Many financial institutions are questioning where rates are headed and how to structure their ALM strategies accordingly. As regulators focus on interest rate forecasts used for interest rate risk management, remember that flattening, steepening, or inverting yield curves can influence your projections. Read this blog for a better understanding of the mathematical relationships in each of these projections.

Effective CECL model validation: A framework 

During a 2023 Abrigo webinar, about two-thirds of participants said their financial institutions had a model risk management process in place, as well as an inventory of models. About 30% did not have these but were planning on them in the next two years. Regulatory guidance says management should periodically validate the loss estimation process for the allowance for credit losses and any changes to it to confirm its appropriateness for the institution’s size, complexity, and risk profile. Read this blog to learn what’s involved in CECL model validation and what can banks expect from this risk management process.

Which credit areas need routine "maintenance"? Get ready for the next credit cycle with credit department housekeeping tips from this webinar.

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SVB: Early lessons for all financial institutions from Silicon Valley Bank’s failure

The FDIC closure and assumption of Silicon Valley Bank (SVB) – the largest bank failure since 2008 – is a stark reminder that when a crisis occurs, it can spread as fast as a wildfire in dry fields with a strong wind. While this bank had unique loans that most community financial institutions won’t be dealing with, it does raise the question of appropriate stress tests. Read this blog for five steps financial institutions can take from the lessons taught by SVB's failure. 

Capital stress testing: The Fed's scenarios can help smaller financial institutions

The 2023 stress test scenarios released by banking regulators for DFAST institutions can help smaller financial institutions analyze the potential impact of adverse outcomes. Banks and credit unions can tailor them to their own instances rather than building them from the ground up – editing the regulator-developed scenarios as opposed to creating them from scratch. Read this blog for a look at four ways these financial institutions can use the stress test scenarios to benefit their bank or credit union.

CRE risk: Lessons from recent earnings reports

The health of CRE loans and related credit risk is a focus of investors, board members, other stakeholders, and upcoming regulatory exams. During earnings season, financial institutions are facing increased scrutiny and inquiries regarding their CRE segments and credit performance. This article outlines a structured approach to ensuring management can confidently answer inquiries about the health of their CRE segments and related credit performance.

CECL best practices: Ongoing management of the allowance model

Adopting the current expected credit loss model, or CECL, has been a critical effort at financial institutions over the last few years. Now that it’s implemented, it’s crucial to ensure ongoing compliance and efficient management of the allowance for credit losses (ACL). Developing this estimate is important enough that a smart approach is to follow some CECL best practices for ongoing management of the ACL. Read this blog to learn what these practices are and how they can benefit your financial institution.

4 ways to evaluate your loan review department’s effectiveness

Concerns around credit quality are on the rise as financial institutions across the country look to understand how work from home, high inflation, and rapidly increasing interest rates have impacted the portfolio. A key component of understanding and reacting to these concerns is the loan review function. Acting as the last line of defense, it is crucial to have an effective process in place.   For over a decade, DiCOM Software, now Abrigo, has  surveyed loan review professionals to uncover challenges they often face. This blog highlights four critical areas that banks and credit unions can evaluate to gauge the efficiency of their loan review departments: staffing, collaboration practices, job responsibilities, and talent development.

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Reading blogs about ALM, portfolio risk, and CECL practices regularly is one of the best ways to keep your compliance staff updated on the latest regulations, trends, and tips for managing risk. 

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About the Author

Kate Randazzo

Content Marketing Manager
Kate Randazzo is a Content Marketing Manager at Abrigo, where she works with industry thought leaders to create digital content that helps financial institutions better serve their customers. Before joining Abrigo, Kate managed social media and produced articles for Campbell University’s quarterly magazine and other university content initiatives. She earned

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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