WIXLIB

Leveraging the Dual Rating FrameworkStarting PointEnhancementConsiderations Easier to implementfor Basel IRB banks(this is the mostpopular approachfor IFRS 9implementation)» The PD/LGD/EADframework for BaselIRB PD†Adjust “regulatory”definition to“accounting”definition» The dual ratingframework currentlyused in businessdecision such as loanpricing, limit setting, riskmonitoring and settingreserve†TTC to PITconversion toincorporate forwardlooking assessment There is a wealth ofdata and expertisein place as a resultof IRB compliance†Extend term structureof PD and LGD Easier to assessimpact on businessdecisions such assetting loan termpricing and termsIntroduction to CECL Quantification22

PD, LGD, EAD Modeling Under Basel and CECLBASELCECLPD1. 1-year TTC (through-the-cycle) PD based onhistorical long run average default rate;2. Subject to prescribed regulatory floors (e.g.3.b.p for some portfolio)3. Estimated based on minimum five years ofhistorical data1. Term structure of PDs2. Point-in-time (PIT) PD measures;3. Include historical, current and forward lookingelements at reporting date for all possibleoutcomes;4. No prescribed regulatory floorsLGD1. “Downturn” LGD to reflect adverse economicscenarios.2. Consider both direct and indirect costsassociated with collection of the exposure;3. Regulatory prescribed floors;4. Discount rate based on weighted average costof capital or risk-free rate;5. Min. 5 year data for retail and 7 year forsovereign, corporate and bank exposures1. “Current ” or “forward looking” to reflect impact ofeconomic scenarios;2. Only costs directly attributable to the collection ofrecoveries (remove the collective cost in BASELLGD);3. Discount rate based effective interest rate;4. Timely evaluations of collateral value andconsideration of future value changesEAD1. “Downturn” EAD to reflect what would beexpected during a period of economic downturnconditions;2. Estimates take into consideration of on/offbalance sheet exposures adjusted forestimated future draw downs over the lifetime.1. Consider all contractual terms (e.g. prepayment,usage, call and similar options) over the lifetime;2. Adjust for firm’s estimates for the undrawncommitmentsIntroduction to CECL Quantification23

Leveraging the CCAR/DFAST Stress Testing FrameworkStarting Point» CCAR/DFAST or otherstress testing models» These models havegone through extensiveand rigorous validationand benchmark» Resource and expertisebuilt for CCAR/DFASTEnhancementConsiderations† More seamlessintegration withCCAR/DFASTprocessCalibrate the models toboth “adverse/stress”and “normal” scenarios†Extend term structureof PD and LGD†Enhance segmentationand granularity There is a wealth ofdata and expertisealready in place as aresult of CCARimplementation Consider the linkagewith other businessapplications such asunderwriting, pricingof loans etc.Introduction to CECL Quantification24

4. How do you plan to incorporate forward-lookinginformation to expected credit loss estimates?A. Modeled: Linking macroeconomic variables to loss estimates quantitativelyB. Overlay: adding impact of macroeconomic forecast to the expected credit loss throughmore qualitative measuresC. Mix of quantitative models and qualitative overlaysD. Have not decidedIntroduction to CECL Quantification25

How do you plan to incorporate forward-looking information to expected credit ed: Linkingmacroeconomic variables toloss estimates quantitativelyOverlay: adding impact ofmacroeconomic forecast tothe expected credit lossthrough more qualitativemeasuresMix of quantitative modelsand qualitative overlaysHave not decidedNo AnswerIntroduction to CECL Quantification26

Business Impacts of CECL can be Significant and ProfoundLoss allowance under CECL and FAS 5&114 candiffer materially due to differences» between PIT and TTC PDs» lifetime expected loss and the assumed lossemergence periodCECL may affect» Fluctuation / volatility in provision and earnings,» Available capitalThese impacts on earnings and capital may besignificant with consequences for» Loan origination---loan product term and pricing» Customer relationship» Hedging and other credit portfolio decisionsWill my approaches to estimating CECL help track and monitor these impacts? Will theyhelp design metrics to reduce potential volatility—e.g. by diversifying loans within portfoliosto reduce concentrations of credit risk or adjusting maturities of loans?Introduction to CECL Quantification27

Key Takeaways» Modeling expected credit losses represents one of they key challenges of theCECL accounting standard» Existing risk measurement tools used for regulatory capital, internal ratings,and stress testing can serve as good starting points. However, necessaryenhancements may include:̶Segmentation granularity̶Adjustment for current conditions̶Linkage to forward-looking scenarios̶Extension to life of loan̶Adjustment for built-in bias (i.e. conservatism)» The appropriate approach ultimately depends on portfolio- and organizationspecific considerations, including data availability and interconnectedness ofbanking functions» The rest of the webinar series will focus on modeling considerations forspecific asset classesIntroduction to CECL Quantification28

Welcome!Moody's Analytics CECL Webinar Series:Expected Credit Loss QuantificationIntroduction to CECL QuantificationTodayC&I CECL MethodologiesTuesday, March 14, 2017 1:00PM ESTTo find out more about Moody’sAnalytics perspectives on CECLand register for our webinar seriesvisit:Retail CECL MethodologiesTuesday, March 28, 2017 1:00PM ESTwww.moodysanalytics.com/ceclCRE CECL MethodologiesTuesday, February 28, 2017 1:00PM ESTStructured Assets CECL MethodologiesThursday, April 20, 2017 1:00PM EST

Moody’s Credit Loss and Impairment Analysis SuiteSolutions to Support CECL Impairment CalculationEconomicScenariosAnalysis &ReportingCreditDataModeling &AdvisoryServicesCreditModeling &ELCalculationQualitativeOverlayManagementWorkflow andAutomationIntroduction to CECL Quantification30

2017 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensorsand affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES(“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES,CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS ANDRESEARCH PUBLICATIONS PUBLISHED BY MOODY’S (“MOODY’S PUBLICATIONS”) MAY INCLUDEMOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDITCOMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THERISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEYCOME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGSDO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKETVALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED INMOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’SPUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISKAND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDITRATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT ORFINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOTPROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES.NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF ANINVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS ANDPUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACHINVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITYTHAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.MOODY’S CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USEBY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAILINVESTORS TO USE MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS WHEN MAKING ANINVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHERPROFESSIONAL ADVISER.ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO,COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISEREPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED,REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, INWHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANYPERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.All information contained herein is obtained by MOODY’S from sources believed by it to be accurate andreliable. Because of the possibility of human or mechanical error as well as other factors, however, allinformation contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessarymeasures so that the information it uses in assigning a credit rating is of sufficient quality and from sourcesMOODY'S considers to be reliable including, when appropriate, independent third-party sources. However,MOODY’S is not an auditor and cannot in every instance independently verify or validate information receivedin the rating process or in preparing the Moody’s Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives,licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, orincidental losses or damages whatsoever arising from or in connection with the information contained hereinor the use of or inability to use any such information, even if MOODY’S or any of its directors, officers,employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of suchlosses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss ordamage arising where the relevant financial instrument is not the subject of a particular credit rating assignedby MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives,licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to anyperson or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or anyother type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or anycontingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents,representatives, licensors or suppliers, arising from or in connection with the information contained herein orthe use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS,MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OROTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNERWHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation(“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds,debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have,prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for appraisal and ratingservices rendered by it fees ranging from 1,500 to approximately 2,500,000. MCO and MIS also maintainpolicies and procedures to address the independence of MIS’s ratings and rating processes. Informationregarding certain affiliations that may exist between directors of MCO and rated entities, and between entitieswho hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of morethan 5%, is posted annually at www.moodys.com under the heading “Investor Relations — CorporateGovernance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the AustralianFinancial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (asapplicable). This document is intended to be provided only to “wholesale clients” within the meaning of section761G of the Corporations Act 2001. By continuing to access this document from within Australia, yourepresent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesaleclient” and that neither you nor the entity you represent will directly or indirectly disseminate this document orits contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001.MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on theequity securities of the issuer or any form of security that is available to retail investors. It would be recklessand inappropriate for retail investors to use MOODY’S credit ratings or publications when making aninvestment decision. If in doubt you should contact your financial or other professional adviser.Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agencysubsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., awholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agencysubsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”).Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratingsare assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify forcertain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with theJapan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate andmunicipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (asapplicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) forappraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.Introduction to CECL Quantification31

B. Loss rates based on internal experience (e.g. static pool analysis) C. Rating migration / roll rate D. Vintage analysis E. Dual risk ratings (i.e., PD / LGD) F. Other. Introduction to CECL Quantification 19 0% 10% 20% 30% 40% 50% 60% Loss rates based on peer institution data (e.g. call report data) Loss rates based