Create Amortization & Accretion Rules for ECL

Owned by Nancy Cohn (Deactivated)
Last updated: Dec 01, 2023
2 min read

In the Create Amortization & Accretion Rules panel, you can add an amortization/accretion rule for use with fixed income positions that follow the expected credit losses (ECL) methodology. After you create an accounting rule, you can create the amortization/accretion rules that use the accounting rule.

From an amortization perspective, ECL uses the net present value (NPV) approach for calculating the yield and posting amortization. That yield will be “locked-in” and not change except for changes in initial cash flows or changes in initial cash flows and coupon rate. The following accretion rule setup is necessary for Eagle to properly account for fixed income positions that follow the ECL method.

To create an amortization & accretion rule for use with ECL:

  1. Do one of the following:
    - In Portfolio Data Center, in the left navigation pane, click Portfolio Desk > Accounting Portfolio Rules > Amortization & Accretion > Create Amortization & Accretion Rules. 
    - In Accounting Center, in the left navigation pane, click Setup > Portfolio Rules > Amortization & Accretion > Create Amortization & Accretion Rules.
    You see the Create Amortization & Accretion Rules panel.

  2. Under Rule Information and Asset/Security Specific, identify the accounting rule and security specific information.
    For more information, see Amortization & Accretion Rules Panel Options.

  3. Under Amortization/Accretion, do the following:
    - Set Yield Type to Net Present Value. 
    - Set Adjustment Type to ECL.
    - Set Amortization Methodology to Prospective. 
    - Set the Amortization/Accretion Method to the appropriate value.
    - Set ECL Prospective Amortization Yield Recalculation Frequency to ICF (Initial Third Party Cash Flow Released) or ICF/CPN (Initial Third Party Cash Flow/Variable Rate). 

  4. Complete the remaining options on the Create Amortization & Accretion Rules panel.

  5. Click Submit.

After you set up an amortization rule, you can choose that rule in the Primary Amortization/Accretion Rule field for any entities you create. When you use the Add a Basis to a Portfolio panel to add an additional accounting basis for an entity or master fund, you can enter a value for the Primary Amortization/Accretion Rule field (tag 3197).