Moody's Insights: Credit Cards and Lifetime Estimation - A Reasonable Approach

Jan 30, 2019 10:40 AM ET

Many institutions are struggling to apply the CECL standard as it pertains to credit cards, and in particular determining the lifetime value for credit card portfolios. In this paper, we explore the different approaches to evaluating lifetime estimates for the credit card portfolio.

Life changes; so does your allowance
In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, known as the current expected credit loss (CECL) standard. Intended to improve financial reporting, it requires earlier recognition of expected credit losses for assets measured at amortized cost. More granular disclosures of the potential risk in a bank’s portfolio are also expected.

Click to continue reading