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Q-factors and forecasting for basic entities - your questions answered

In our latest CECL Tuesday talk-through we answered your submitted questions on Q-factors and forecasting for basic entities. This article reviews the key takeaways from our session.

Key takeaways:

  • Complexity of forecasting should be consistent with complexity of method​
  • Incorporating time-series forecast may not be necessary
  • Can be a simple adjustment after historical loss calculation

Key takeaways:

  • Don’t need to be “boxed” into any specific factors, use what impacts your portfolio the most 
  • May not need to use any qualitative factors if forecasting is incorporated into model 
  • Understand how your market compares to national metrics.  ​

Key takeaways:

  • Q-factors may make up a large portion of CECL estimate if historical losses are low
  • Changes in q-factors are a key factor in volatility of CECL estimate
  • Can you support and document why your Q-factors make up a large percentage of CECL?

Key takeaways:

  • Can be determined in a quantifiable way, but doesn’t mean it has to be (i.e. unemployment)
  • Look at what caused large loss events to identify triggers
  • Not all economic metrics impact every institution. Some portfolios are more correlated to certain metrics than others.
Watch our webinar here:

Ivan Cilik
Partner
Matt J. Nitka
Partner
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