IHS Markit is leveraging its scale in the economic and technological worlds to help banks and finance companies navigate significant accounting changes coming within the next year.
The company announced the launch of its economic and financial scenario solution designed to help banks comply with the Current Excepted Credit Loss (CECL) estimation required under the Financial Accounting Standards Board (FASB) standard going into effect in 2020.
IHS Markit explained that CECL requires lending institutions to calculate expected credit losses using reasonable and supportable forward-looking macroeconomic and financial forecasts and report the losses on a quarterly or monthly basis. The company contends many firms lack the macroeconomic and financial forecasts, historical macro data and tools required to simulate the range of credit loss scenarios required by CECL.
The IHS Markit solution provides eight economic scenarios to help banks estimate future expected credit impairment, understand risks impacting credit losses and comply with the requirements under CECL. The scenarios are produced by the firm’s award-winning team of economists, using its proprietary, widely-respected macroeconometric model, applied by clients for forecasting and compliance purposes for decades.
“Our CECL solution provides the macroeconomic and financial scenarios and historical data to drive a firm’s credit loss estimates, whether produced in house or by a third-party,” said Chris Varvares, vice president and co-head of U.S. economics at IHS Markit. “It delivers eight transparent and comprehensive, probability-weighted macroeconomic and financial scenarios from our proprietary models and is able to be implemented across many vendor platforms firms already employ.”
Specifically, the solution includes:
— National macro and financial data: Historical and forecast data for eight scenarios at a national level
— Regional data: Historical and forecast data for three scenarios covering nine regions, 50 states and the top 100 metropolitan areas
The forecasts are provided over a 10-year horizon and are updated monthly. The scenarios are accessible through the Connect Platform from IHS Markit or able to be implemented across various vendor platforms.
The eight scenarios include the Macroeconomic Advisers by IHS Markit baseline forecast, representing the most likely scenario, three scenarios with better outcomes in terms of near-term growth and four scenarios with worse outcomes.
Among the current scenarios are faster growth/rapid productivity, boom/bust and global slump/financial crisis. Providing seven alternative scenarios can give banks options for choosing scenarios that best fit their needs.
Macroeconomic Advisers by IHS Markit was recently named the most accurate U.S. economic forecaster for 2017 by the Wall Street Journal and Focus Economics. Nariman Behravesh and the IHS Markit U.S. macroeconomic team also received the 2017 Lawrence R. Klein Award for forecasting accuracy.
For more information, managers and executive can listen to a recent webinar hosted by Varvares and the HIS Markit team.