Q-factors and forecasting for complex entities - your questions answered

Key takeaways:

• Complexity of forecasting should be consistent with complexity of method​
• Incorporate forecasts that are most impactful to your institution and operating footprint​
• Quantify the qualitative using min and max thresholds ​

Key takeaways:

• Don’t need to be “boxed” into previous 9 factors, use what impacts your portfolio the most​
• Keep in mind what Q factors may be incorporated into your forecasts (changes in economic factors, delinquencies, etc.) to avoid double counting​
• Understand how your market compared to national metrics ​

Key takeaways:

• Understand what metrics are impacting your future loss assumptions​
• Understand how changes in your forecast impact your CECL estimate (i.e. stress-test!)​

Key takeaways:

• Q-factors make up a significant portion of overall CECL estimate for a large quantity of entities, but not all. ​
• Changes in q-factors are key factor in volatility of the CECL estimate ​
• Can you support and document why your Q-factors make up a large percentage of CECL? ​

Key takeaways:

• Can be determined in a quantifiable way, but doesn’t mean it has to be (i.e. unemployment)​
• Look at what caused large loss events to identify triggers​
• Not all economic metrics impact every institution. Some portfolios are more correlated to certain metrics than others. ​