Banks Will Be Cast Adrift on a Sea of CECL and IFRS9 Loan Data, If Their Loan Origination Systems Aren’t Up to Scratch

By Ron Meyer, Senior Business Advisor for Capitalstream, Linedata

Banks are beginning to prepare for the biggest accounting change in living memory. Because the current system of financial reporting was too slow to recognize losses on loan and debt securities during the financial crisis, the global accounting framework for debt instruments is being reformed. The International Accounting Standards Board and the Financial Accounting Standards Board are introdu-cing new accounting rules that will fundamentally change how banks reserve for such losses. The idea is that more timely loss recognition will make it easier to judge how risky a banks underlying assets are.

Both the FASB’s Current Expected Credit Loss Model (CECL) and the IASB’s IFR9 credit impairment model are designed to make the recognition of credit losses more responsive to changes in the credit lifecycle. However, while IFRS9 utilizes a dual measurement model requiring entities to recognize credit losses on a 12-month or li-fetime basis based on credit risk direction, CECL requires banks to estimate credit losses over the lifetime of the loan, from the point the loan is made or a debt security is acquired. Where these standards overlap is they require banks to use historical data, current economic conditions and reasonable forecasts to measure expected credit losses.

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Linedata Capitalstream is the Best-in-Class solution that provides leading financial institutions with the tools and services that they need to auto-mate multiple lines-of-business around the globe. The Linedata Capitalstream lease and loan origination and risk management platform automates disparate, paper-based, and high-touch operations into a fully integrated, straight-through processing lease/loan front office solution.
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