CECL bespoke forecasting: Bringing expertise from across the pond

CECL bespoke forecasting: Bringing expertise from across the pond

By Damien Burke, Partner, 4most

Could you please tell our readers a little bit about yourself, your experience and what your current professional focus is?

I am the Products and Services Partner and Head of Regulatory Practice for 4most, the UK’s largest credit risk consultancy, with around two decades of experience in credit risk and collections.  I have worked in a variety of roles, including leading large elements of IRB programmes in six organisations, leading Capital and Impairment functions, Risk Appetite and Control functions and providing thought leadership in response to regulatory changes.  Throughout my career I have developed a deep knowledge of regulatory requirements, having delivered significant projects on CRR and COREP and developed IFRS 9 Methodology and solutions for several UK and International Financial Institutions. I am looking forward to applying these learnings in finding solutions to the unique challenges different lenders will face under the new CECL regulation

What, for you, are the benefits of attending a conference like the CECL Congress and what can attendees expect to learn from your session?

The CECL Congress provides a great opportunity for us to meet other industry experts, learn from their experience and share ours. The conference is a perfect platform for discussion, having such a breadth of experience across different functional areas and business sizes, each with the ability to provide a unique view on what impact CECL has on them.

We are lucky enough to be running two sessions at the CECL Congress:

  1. A joint presentation with BanCorpSouth on economic forecasting. This is with a focus on 4most’s economic subscription offering, which translates key risks into a set of economic scenarios consistent with clients view on risk horizon level to be included in impairment calculations.
  2. A joint presentation with BancorpSouth on economic forecasting focussing on 4most’s economic subscription offering. The service translates key risks into a set of economic scenarios consistent with client’s views which are included in CECL impairment calculations.
  3. A lunch address which will talk about the holistic offering that 4most can bring to a client, our background and experience to date and how this can support you in your CECL journey.
You will be covering CECL bespoke forecasting: Bringing expertise from across the pond. What key lessons from IFRS 9 implementation will you be looking to address?

We will be looking at the obstacles that are presented with lifetime modelling, with a forward look requirement. How different institutions can approach the concept and what solutions there are for ensuring that the forecasts are intuitive, representative and justifiable for both internal and external stakeholders?

From an economics perspective, our talk will be stressing the need for firms to be alert to the economic risks – good and bad – facing their businesses. CECL presents an opportunity to quantify those risks and to understand the economic environment that the business operates in.

We look forward to your joint presentation with Ty Lambert at Bancorp South on scenario generation. Drawing on your experience of IFRS 9, what tips can you provide FIs for CECL?

The three key learnings from IFRS 9 which I think would help FIs looking at CECL:

  1. Banks often purchased Software which limited bespoke model development. This limited functionality and value. It is always prudent to ensure flexibility to accommodate a wide range of model types.
  2. The complexity of solution should suit the organisation and portfolio. There is not a “one size fits all” solution, and the approach taken should reflect materiality.
  3. CECL, as with IFRS 9, may not just be a COST it may be an OPPORTUNITY. Lifetime loss can be embedded into Pricing Framework and Credit Strategy, whilst also having cross utilization of models within other areas such as Forecasting/Stress testing.
What challenges and opportunities do you see in the coming years regarding CECL implementation and how can financial institutions best prepare for this?

As previously mentioned, there are huge opportunities with CECL to become embedded into an organisations Pricing and Strategy frameworks. The lifetime loss forecasts can be utilised to optimise profitability, identify areas of growth and much more.

The main challenge for financial institutions will be managing the additional demands that come with lifetime loss modelling and, where suitable, having the economics capability to allow for a sophisticated model containing forward look.

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