The new accounting standard for estimating expected credit losses call for some dramatic changes to the allowance for loans and lease losses (ALLL). Financial institutions and financial services companies that are beginning to develop new or revised ALLL models based on the current expected credit loss approach would be wise to include pit stops in their process for model validation. This article explains why validation is so critical and provides advice on executing the validation process.
Read Part 1: Identifying Portfolio Risks
Read Part 3: Governance and Oversight for Making the Transition
Read Part 4: The Resources and Technology Considerations to Make the Transition
Read Part 5: The Need for Model Validation and Getting Prepared