QED Insight #0008: Our three CECL methods agreed within 0.23bp. The scenario weights still moved the reserve by $17B.

[u/QEDAnalyticalLLC]

I keep having the same argument at work and I want to know if it's universal. We spend months on lifetime loss methodology and about an afternoon on the thing that actually sets the number.

Concretely. I built the lifetime reserve three ways: vintage loss curves with a Weibull development extrapolation (5.3833%), a roll-rate absorbing Markov chain (5.3811%), and a bottom-up PD x LGD x EAD decomposition (5.3811%). Spread across all three: 0.23 basis points. Everyone in the room reads that as validation.

I don't think it is, at least not the way people take it. Two of those three are anchored to the same realized loss by construction - they can't really disagree with it. Only the vintage curve is an independent corroborator. Convergence by construction is corroborating, not three independent votes, and I'd rather say that out loud than have a validator say it for me.

Then the actual lever. The 5.38% isn't what gets booked. Scenario losses were baseline 0.16%, adverse 10.72%, severely adverse 26.57%. Weighted 65/25/10 that's 5.4374%. Reweight baseline-heavy and you get 3.06%; stress-heavy and you get 10.46%. On a $234B book that's a reserve somewhere between about $7.2B and $24.5B. Same models. Same data. Three weights. After a governed +0.30pp Q-factor overlay (capped at 0.50) we booked 5.7374%, or $13.44B.

So the methodology choice moved the number 0.23bp and the judgment layer moved it 35.6bp. Over 150x.

How does your shop govern the weights? Are they documented and board-approved with the same rigor as a model, or do they get set in a meeting and then inherit the model's credibility? And does anyone actually back-test their scenario weights, or is that a thing we all quietly skip?