Insights & News
Risk management insights on model development, loss forecasting, CECL, and stress testing — from practitioners who build the models.
Banks estimate what they could lose in stress tests. Credit losses exist in regimes — long stretches of low losses punctuated by sharp, severe transitions. The only value of stress testing is deciding what to do before the shift happens, but most banks don’t. They should use the results to know when to hold, when to fold, when to walk away and when to run.
Recent Insights
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Predictions, Forecasts and the Value of Scenario Analysis
Read more: Predictions, Forecasts and the Value of Scenario AnalysisAccording to the The Wall Street Journal, “In Uncertain Times, CEOs Lose Faith in Forecasts” and “CEOs Put Less Stock in Predictions,” which is the title of an abbreviated article in the July 13, print edition. The authors state that “uncertainty has been a given for business since the financial crisis, but business leaders say recent…
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The High Cost of Stress Test Consulting
Read more: The High Cost of Stress Test ConsultingThe Wall Street Journal reported today that banks spent about $29 billion on consultants last year, and that much of the total was spent on stress tests in the U.S. and abroad. We’re not sure whether either the reported total or the portion spent on stress tests is accurate, but we’re sure it was a…
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Brexit, SR-12-7 and SR-11-7
Read more: Brexit, SR-12-7 and SR-11-7Now that’s a sexy title… but only to a small audience interested in scenario analysis (stress testing) and model risk.1 During the past week, many analysts have written and commented about the Brexit vote and its implications. We are interested in two particular aspects of the event: Was there sufficient scenario analysis (stress testing in…
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Model Risk Management: The Canadian Edition Presentation
Read more: Model Risk Management: The Canadian Edition PresentationOur CEO, Andy Spero, recently presented at GFMI’s 2016 Model Risk Management: The Canadian Edition. The conference was held in Toronto, Canada, on March 7th and 8th. Andy was on a panel that discussed “CCAR and DFAST stress testing: What can be adopted by Canadian institutions?” He commented that whether required or not, rigorous scenario…
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Spero Risk Associates
Read more: Spero Risk AssociatesWelcome to SperoRisk.com, the web site for Spero Risk Associates, llc, a boutique consulting firm specializing in risk management and finance. Founded in early 2016, by colleagues and former risk management executives, Spero Risk Associates brings extensive experience, expertise, and integrity to every engagement. We specialize in advisory and consulting services for banks and other…