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ALLL / Backtesting


Backtesting

  • Backtesting

    Backtesting for Reporting

    Backtesting is an exercise that compares the actual outcome with model forecasts during a defined period. It can be considered a form of outcome analysis to monitor model performance and determine if adjustments or revisions are needed over time.

  • Q factors

    Backtesting Qualitative Factors

    Backtesting refers to retroactively validating the accuracy of an institution’s methodology. This consists of pinning the ALLL calculation against actual credit losses to determine the degree of variance. If an institution’s prior backtesting efforts show that their allowance calculation has consistently been accurate with their qualitative adjustments, it can serve in the defensibility of the ALLL and in justifying Q factor adjustments moving forward.

  • Backtesting

    Quantitative Backtesting

    Backtesting refers to retroactively validating the accuracy of an institution’s methodology. This consists of pinning the ALLL calculation against actual credit losses to determine the degree of variance. Having a consistently accurate ALLL can serve as an invaluable tool in validating your methodology and defending it to regulators.

Poll

What type of data do you anticipate leveraging for your CECL calculation?

  • 1-5 years of detailed loan level data
  • 5+ years of detailed loan level data
  • 1-5 years of aggregate (pool level) data
  • 5+ years of aggregate (pool level) data
  • I don't know the difference

Tip Of The Day

Currently the new CECL standard seeks calculations that make use of an institution’s “reasonably available” data. Starting to collect granular, loan-level data today will provide at least three years’ worth of good and useful data by implementation.

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