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April 12, 2017

In this issue of A&M Readings in Quantitative Risk Management, we examine the final current expected credit loss (CECL) standard issued by the Financial Accounting Standards Board in 2016, and the implications for financial institutions in how they estimate the expected loss on credit facilities. We discuss the relationships between the economy and default and loss at aggregate levels that may be replaced by more precise predictors of credit risk for individual borrowers, as well as how the common approach to modeling credit risk for portfolio forecasts may double-count predictive effects when applied to borrower-level forecasts.


Current Expected Credit Loss — Modeling Credit Risk and Macroeconomic Dynamics