Using What-If Scenarios to Test ALLL Variables
What-if scenarios are a way to examine the impact of a given variable in a controlled environment. In the scope of the ALLL, institutions may be interested to see the effect of changing their lookback period, switching to a different loss methodology, or entering a new market, among other scenarios.
The use of scenario planning allows institutions to examine the end result of the calculation while accounting for the impact of different variables. This knowledge not only increases insight into the calculation but also tends to be helpful in exams, as the practice of scenario building demonstrates to examiners that you have considered multiple variables in your calculation and are aware of the impacts of each.
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4 Advantages of ALLL Scenario Building
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