Expected loss

However, when a systemic crisis hits, and home values drop 30% for a long period, that same class of borrowers changes their default behavior.

To accommodate for that type of situation a much larger expected loss needs to be calculated.

This is the subject to considerable research at the national and global levels as it has a large impact on the understanding and mitigation of systemic risk.

Julien Temim (2016): The IFRS 9 Impairment Model and its Interaction with the Basel Framework, in: Moody's Analytics risk perspectives | the convergence of risk, finance, and accounting: CECL | volume VIII | November 2016, Moody’s Analytics : New York.

Manuele Iorio/Juan M. Licari (2015): IFRS 9 Impairment Webinar Series – Models for Implementation, Moody’s Analytics : New York.