Rethinking Risk Ratings Ahead of CECL
Depending on the methodology elections an institution makes under the current expected credit loss (CECL) model, risk ratings can be an absolutely critical input for loss rate calculations. This is especially true for migration analysis. But even more broadly, risk ratings play an essential role in understanding, measuring and limiting credit risk to the institution. Consequently, the risk rating policy that defines measurement criteria, timing and use-cases is an important document under both incurred and expected loss models.