Financial institutions globally are bracing themselves for new accounting standards that will drastically change how they classify and measure expected credit losses (ECL).
To date, IFRS 9 adopters have dedicated most of their efforts to addressing technical and methodological issues in their existing models and practices. Although this work is essential, banks that focus only on the technical aspects of the new rules run the risk of overlooking the business and strategic impact.
For US banks just starting to develop strategies to address CECL, the experiences of European banks provide a valuable point of reference for how to prepare. While the structure and time frames of the two new accounting standards differ, the high-level implications for banks are similar and should be used to inform efforts to develop more-effective risk management strategies going forward.
The IACPM/McKinsey survey of 51 financial institutions around the globe sought to highlight how the industry views the strategic and business implications of the accounting changes.
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