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As experts in the field of data analytics, we have many years of experience in building and validating analytical models. Lately, we are focusing on customized Current Expected Credit Loss (CECL) model development, implementation and validation. Our models are developed and implemented using SAS, R, Python and SQL server;

Our experiences include developing customized CECL models, implementing Moody’s RiskCalc, CMM and MPA models and building quantitative Q-factors models based on Moody’s analytics.

  • RiskCalc, CMM and MPA models implementation and validation for CECL
  • Quantitative Q-factors overlay CECL models for RiskCalc, CMM and MPA models
  • Customized lifetime loss rate model for CECL
  • Maturity Exogenous Vintage (MEV) model for CECL
  • Model implementation and integration
  • Model validation and on-going monitoring

Model

Maturity Exogenous Vintage (MEV) model for CECL

MEV model bases on vintage approach to model credit loss for CECL purpose. MEV model adds Macroeconomic sensitivity and portfolio characteristics through exogenous factors. MEV model demonstrates excellent business intuitions and in line with classical loan default analysis; Our MEV model includes the following analysis where applicable:

  • Vintage analysis of portfolio
  • Exogenous variable analysis
  • Macroeconomic variables analysis
  • Factor analysis and principal components of Macroeconomic variables
  • Portfolio characteristic variable analysis
  • Probability of default model
  • Loan utilization analysis and model
  • MEV model – combine above analysis to build CECL loss rate model
  • Reasonable and supportable period analysis
  • Reversion to mean analysis
  • MEV model for CECL
  • Integration with accounting software using any computer language
  • Development of independent CECL reporting system for accounting

PD/LGD/EAD model for CECL

PD/LGD/EAD method follows the approach for stress testing model but adopts it for CECL purpose.

  • PD model
  • LGD model
  • EAD model
  • Integrate PD/LGD/EAD for CECL
  • Integration with accounting software using any computer language
  • Development of independent CECL reporting system for accounting

Lifetime loss rate model for CECL

Lifetime loss rate model for CECL utilizes a direct approach to loss rate estimation. It uses cross sectional panel data to model lifetime loss rate directly. Lifetime loss rate model incorporate both Macroeconomic and portfolio characteristics into the model;

  • Macroeconomic variable analysis
  • Portfolio characteristic variable analysis
  • Lifetime loss rate regression model
  • Reasonable and supportable period analysis
  • Reversion to historical mean analysis
  • Integration with accounting software at any computer language
  • Development of independent CECL reporting system for accounting

Q-factor models for Moody’s analytics

Q-factor models are quantitative methods overlay on Moody’s RiskCalc, CMM and MPA models. Moody’s analytics provide CECL calculation for commercial & industrial loans, commercial mortgage loans and mortgage loans. In some cases, Moody’s models do not fit a bank’s portfolio well. Quantitative Q-factor models add adjusting factors (or multiplies) based on specifics of bank’s portfolio and localized economic factors.

  • Back testing analysis of Moody’s model performance
  • Q-factor overlay models for RiskCalc, CMM and MPA
  • XML API or batch script implementation of Moody’s RiskCalc, CMM and MPA
  • Integration with accounting software using any computer language
  • Development of independent CECL reporting system for accounting

Validation

We have extensive experience validating CECL related models based on our expertise of developing models. Our validation work emphasize on benchmark model, quantitative criteria and historical backtesting.

  •  Alternative model or benchmark model
  • Industry common practices and peer bank approaches
  • Quantitative criteria and statistical tests
  • Historical backtesting

About

We are PhD-level, seasoned, quantitative analysts with many years of experience in CECL models. We have worked at Moody’s, American Express, AIG, Bank of America, Citigroup and other big and small banks. We will help you with any CECL related projects!