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CECL and Q-Factors: Three Approaches

With CECL right around the corner, financial institutions are evaluating CECL-compliant methodologies, as well as restructuring their pools for more CECL-appropriate risk segmentation. A next step in completing the CECL transition process is to incorporate “reasonable and supportable” forecasts into the model, potentially by using qualitative adjustments (Q-factors).

In this whitepaper, you will learn about three methods you can use when making qualitative adjustments. Included are discussions on how to conduct various qualitative adjustment strategies and the pros and cons of utilizing each method at your financial institution. There will be an analysis of:

  • The Overlay Method
  • The Scaling Method
  • The Replacement Method

At the end of this paper, you will have a better understanding of how to choose the most appropriate Q-factor approach that best suits your data needs.