Investor Presentaiton
Multiple scenarios versus most likely
outcome
Example:
Approach 1: Most likely economic scenario
considered
Approach 2: Probability weighted average
of plausible economic scenarios
underpinning the central scenario
Upside
Scenario
Scenario
Scenario ECL
unemployment likelihood
(CU)
4%
20%
30
Central / most likely
Downside
5%
50%
70
6%
30%
170
Probability weighted average
92
Responsiveness of credit outcomes to macro-economic factors is often non-linear
meaning considering a single most likely outcome may not Standard's requirements
for an unbiased probability weighted measure
Potential approach I
Model multiple outcomes using
macro-economic regression models
and take a probability weighted
average
► Computationally intensive
Requires judgement in determining
and weighting scenarios
Potential approach II
Model a single outcome and apply
judgemental adjustments to reflect
differing future outcomes & non-
linearity
▸ May not require regression models
More judgement required and
increased burden to justify outcomes
EYView entire presentation