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

During our latest CECL Tuesday talk-through we answered submitted questions on Q-factors and forecasting for complex entities. This informative article reviews the questions we answered in our session.

Be sure to check back as we will be updating this article with more submitted questions and our webinar recording.

Key takeaways:

  • Complexity of forecasting should be consistent with complexity of method​
  • Incorporate forecasts that are most impactful to your institution and operating footprint​
  • Quantify the qualitative using min and max thresholds ​

Key takeaways:

  • Don’t need to be “boxed” into previous 9 factors, use what impacts your portfolio the most​
  • Keep in mind what Q factors may be incorporated into your forecasts (changes in economic factors, delinquencies, etc.) to avoid double counting​
  • Understand how your market compared to national metrics ​

Key takeaways:

  • Understand what metrics are impacting your future loss assumptions​
  • Understand how changes in your forecast impact your CECL estimate (i.e. stress-test!)​

Key takeaways:

  • Q-factors make up a significant portion of overall CECL estimate for a large quantity of entities, but not all. ​
  • Changes in q-factors are key factor in volatility of the 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. ​
Ivan Cilik
Partner
Matt J. Nitka
Partner
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