Loss Forecasting – Spero Risk Associates

Our Specialty

CECL and Stress Testing

Loss forecasting for banks—whether CECL or stress testing—is our specialty! That’s end-to-end: from building and preparing developmental databases to the actual model development to implementation within commercially-available (or custom) production platforms to ongoing performance monitoring (OPM) during production to qualitative adjustments frameworks that are closely related to OPM.

Can a single loss forecasting model be best for both CECL and stress testing? Had you asked us in 2018, we would have (and did) say, “no,” but today we know it’s not just possible, it is our standard approach, which is based on two innovations:

Loss forecasting based on economic theory, rather than simply statistical regularities that provide rigorous yet intuitive risk measures that are sound, sophisticated, and simple.
Insights into the nature of historical observations and patterns and their applicability to forecasting.

Our Approach

Comprehensive Risk Management

Spero Risk Associates has substantial experience with all aspects of stress testing, scenario analysis, and design, especially, but not limited to, CECL, CCAR and DFAST. In fact, we built many hypothetical and historical scenarios for both credit and market risk, as well as joint credit-and-market loss scenarios years before the crisis and CCAR.

We understand relationships between the firm, its environment, and risk factors, such as the industry, social and political conditions, technology, and regulations, which are as ever-changing as the firm.

Understanding the consequences of potential events can provide valuable, actionable information.

Along with a loss-forecasting framework, we are able to recommend and build appropriate scenario and sensitivity analyses as well as ongoing monitoring to estimate the consequences of potential combinations of events and how forecasts can affect your model’s bounds. Analysis can be quantitative, qualitative, or both and can be extremely valuable when implemented correctly, especially the frequently overlooked learning opportunities. We have built successful monitoring programs in a package alongside loss-forecasting models, and have also customized monitoring programs for existing frameworks to satisfy auditors’ questions and provide your level of needs.

Our Experience

Comprehensive expertise across all major credit risk domains with proven track record in model development and implementation.

Consumer Credit Excellence

Decades of experience building robust models for consumer lending with industry-leading performance metrics.

Wholesale Credit Leadership

Specialized expertise in complex commercial relationships with sophisticated risk assessment frameworks.

Advanced Analytics

Cutting-edge forecasting methodologies combining economic theory with statistical rigor for superior predictions.

Real Estate

Mortgages, HELOC, and home equity with property value integration

Student and Solar Loans

Experience developing models for portfolios with a short history and limited seasoning

Credit Cards

Advanced behavioral modeling and utilization rate forecasting

Automotive Finance

Complete lifecycle modeling from origination to charge-off prediction

C&I Lending

Commercial & Industrial loan models with sector-specific adjustments

Commercial Real Estate

Multi-family, office, retail, and industrial property loss modeling

Bond Portfolios

Corporate bond default prediction and portfolio-level loss estimation

Macroeconomic Variables

Multi-horizon forecasting of regional and national economic indicators

PPNR Modeling

Pre-provision net revenue forecasting with fee and expense components

Operational Risk

Frequency and severity modeling for operational loss forecasting