Losses have been extremely low for the last several years which means the Quantitative loss allocation has had a minimal impact on the reserve. Collateral values have been either increasing or stable, resulting in a minimal impact on the reserves for impaired loans. The pre-pandemic focus had been primarily on determining the amount to reserve via Qualitative Factors (QF’s), which made up almost the entire reserve for many financial institutions.
For institutions that had transitioned to CECL, shifting the reserve allocation from using QF’s to using the Quantitative Life of Loan Losses was already taking place. In most cases, the results were a relatively modest bump in the amount of the reserve. The benign economic environment meant that reserves continued to be a significant multiple of actual losses.
- Posted by Megan Warner
- On Monday June 1st, 2020
- 0 Comments