Maintaining Capital Adequacy: Stress Testing and CECL During Economic Downturns
Institutions that identify, measure, and manage risk most effectively will outperform their peers in terms of financial performance while also maintaining safety and soundness. This is especially true during economic downturns, e.g. from the ongoing coronavirus pandemic, as institutions will likely confront increasing credit losses in their customer base. Coupled with an uncertain liquidity and rate environment, maintaining a well-capitalized status is not a foregone conclusion.
If done successfully, risk models can be re-used for greater efficiency. Economic stress testing estimates can inform CECL calculations, which can and should inform and be informed by portfolio valuation activities. CECL model strength is bolstered by the ability to run, test, and compare the results of calculations under different formats and interpretations, using a mix of internal and external data.
Join to learn:
- How to take advantage of the intersection between valuation, CECL, and stress testing
- Why back-testing can help strengthen CECL modeling results
- How the attribution of changes can turn an accounting compliance exercise into an intelligence-generating activity