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Back-Testing Your First CECL Year

By March 13, 2024No Comments

In the model risk management environment, back-testing plays a crucial role in assessing the reliability and effectiveness of your CECL model. It involves comparing the estimated credit losses, including both forecasted loss rates and reversion rates utilized with the actual losses that occurred after the estimate was developed.

By conducting back-testing, financial institutions can gain valuable insights into the performance of their CECL allowance model and meet regulatory expectations. It helps determine if the forecasted allowance loss rates and prepayment rates align with the actual results, as well as assesses the accuracy of the historical reversion rates used in the model.


About The Authors

Micheal Umscheid

President and CEO