---
title: PD/LGD Emerges as Top CECL Methodology
description: Community banks are maxing out their own lending limits for certain types of loans. Bank management must go to the board of directors for permission to raise the limits so they can continue growing lo
image: https://intel.invictusgrp.com/hubfs/blog-042121-885x319-1.webp
---

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## PD/LGD Emerges as Top CECL Methodology

More banks are using the probability of default/loss given default (PD/LGD) model for CECL than any other methodology, according to the accounting firm BKD CPAs and Advisors.

Firm partner Brandy Buckler wrote in a May 21 [Bank Director article](https://www.bankdirector.com/committees/audit/highlights-from-cecl-adoption/) that approximately 60 percent of banks with less than $50 billion in assets indicated using the method, while less than 10 percent used the simple WARM method. She said the finding “could prove very useful to other community banks” as they prepare for the January 2023 CECL implementation deadline.

The PD/LGD model is [far superior to other models](https://intel.invictusgrp.com/2021/01/picking-a-cecl-methodology-five-reasons-why-only-one-method-makes-sense) because it is intuitive, driven by loan-level information, minimizes the dependency and qualitative factors and can be used to inform strategic planning, a January Invictus Intel blog article concluded.

The Financial Accounting Standards Board, which imposed the new standard, [noted this week](https://www.fasb.org/cs/ContentServer?c=Document_C&cid=1176176665603&d=&pagename=FASB%2FDocument_C%2FDocumentPage) that most banks that implemented the standard in 2020 were well prepared. FASB also noted that banks are finding it hard to make peer comparisons because there is no standard “benchmark of information” that is disclosed to investors. This echoes an [Invictus study from November](https://intel.invictusgrp.com/2020/11/how-to-communicate-your-banks-cecl-findings-to-investors) that looked at public disclosures of bank’s CECL findings.

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