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Whitepaper: CECL Implementation Using Probability of Default

Preparing for CECL Compliance Using RapidRatings' Term Probability of Default (PD) Model

Download this whitepaper for an overview of the Term PD model and to understand how to:

  • Avoid compiling and parsing large-scale statistics on which to base PD assessments
  • Inform methods for underwriting and pricing loans & organizing loan pools
  • Meet the CECL equivalent challenge in IFRS 9 -- Stage 2 accounting
  • Initiate PD x LGD as the preferred C&I model
  • Provide an authoritative second opinion on legacy or newly implemented internal or third-party systems.

FASB’s new accounting standard, ASU No. 2016-13, for Current Expected Credit Losses, commonly referred to as “CECL”  will require banks to calculate continual, life-of-loan estimated credit losses on entire commercial & industrial (C&I) portfolios. 

Although mandatory adoption begins at the end of 2019, this unprecedented change from the longstanding incurred loss model will result in significantly more loan data-collection and analysis than ever before; banks need to begin to develop or enhance models and infrastructure immediately. RapidRatings has developed a series of Term Probabilities of Default (PDs), a key requirement for many banks in estimating forward-looking losses. Our Term PDs run 12 months to 10 years on public and private non-financial companies.