Difference between writedown and credit loss
Definition – the difference between a write-down and a credit loss:
Investment banks and the investment-banking units of financial conglomerates mark their assets to market values, whether they’re loans, securities or collateralized debt obligations, and label that a “writedown” when values decline.
Commercial banks take charge-offs on loans that have defaulted and increase reserves for loans they expect to go bad, which they label “credit losses.” Commercial banks can have writedowns on holdings of bonds or CDOs as well.
A CDO is a collateralized debt obligation
In the area of personal finance people often ask “What is the difference between Charge-off and Write-off”?
The answer is there is no difference. Charge-off and write-off are basically the same. Companies use the same accounting function when bad debt is called a charge-off or write-off on the customer’s credit report.
Companies take charge-offs on loans that have defaulted. In consumer finance this can be credit card debt, car loans, etc.