Current Expected Credit Loss (CECL) Scenarios Service

In the early years – when many were still asking, ‘what is CECL?’ – various approaches to meeting CECL accounting standards were adopted. Today, it is increasingly common to use multiple scenarios to assess expected credit losses. This CECL methodology allows institutions to incorporate a range of potential outcomes into their CECL calculations, ensuring that diverse risks are considered, rather than depending on a single forecast. With auditor approval and recent episodes of macroeconomic volatility, we anticipate this multi-scenario approach will become the industry standard.

For the baseline forecast – which has the highest probability attached – our clients benefit from our industry-leading forecasts, produced by a team of more than 400 full-time economists and analysts. Our commitment to quantitative rigour, combined with the calibre of our staff, consistently produces reliable results, as evidenced by our top multi-year rankings in various forecast accuracy surveys and business awards.

Our methodology for constructing forward-looking distributions is similar to the approach used by major central banks to assess risks around their central projections. We use our 35-year history of forecasts to construct an objective measure of forecast uncertainty for key economic and financial variables in the form of a probability distribution. Based on these robust distributions, we derive coherent economic scenarios and associated probabilities using our economic models. Crucially, our approach ensures that the only changes to scenarios from quarter to quarter are due to a transparent assessment of emerging or receding risks. This results in relatively stable scenario projections from quarter to quarter, which minimises volatility in our clients’ profit and loss accounts.

We know that CECL scenarios are used by a wide range of stakeholders, including non-specialists. As a result, we focus on providing transparency around scenario results, making them accessible and understandable for everyone from auditors and risk managers to broader internal stakeholders and the C-suite.

Alongside our data, we provide detailed reports that clearly outline the assumptions behind the baseline and scenarios. We also provide extensive ongoing support, including direct access to our production team for ad-hoc queries, assistance with auditor requests, and a dedicated account manager to field questions and connect you with our wider organisation where relevant.