The new CECL and IFRS 9 accounting standards will require financial institutions to adjust loss allowances based on forward-looking expectations and calculate lifetime losses. In this article, we demonstrate the effect of the new allowance framework by quantifying allowances and credit earnings volatility for a sample portfolio. Our case study finds that along with a shift in the level of allowance, portfolio dynamics and concentrations play an increasingly important role in understanding and communicating expected performance and earnings.

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