Mindblown: a blog about philosophy.
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Learning Opportunities from “A Christmas Story”
Learning is a benefit that is important enough to describe separately! Like much financial and credit model development, scenario analysis is research as much as development or construction. Scenario analysis leads to a better understanding of the relationships between the firm and its environment and risk factors. Note that these … Continue Reading
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SR 12-7 and the Five Principles of Stress Testing
If CCAR/DFAST is the extent of a firm’s stress testing, then, (a) the firm does not comply with SR 12-7, particularly Principles 1 and 2, and therefore, Principle 5; (b) there are likely deficiencies in overall risk management and data governance/systems that prevent implementation beyond CCAR; and therefore, … Continue Reading
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Common Governance Mistakes
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Two Common Validation Mistakes
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Does Unemployment Predict CRE Losses?
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Does Unemployment Predict Commercial Loan Losses?
The Short Answer: Historically, No, It’s the Other Way Around The Long Answer: let’s look at scatter plots and correlations and see the two large problems with using it. This is the third in a series of three posts. Two Regimes In our first post, Unemployment as a Commercial Loan … Continue Reading
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Q1 2020 Large Bank CECL Reserves
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Alternatives to Unemployment as a Commercial Loan Loss Predictor
After reading our post, Unemployment as a Commercial Loan Loss Predictor, someone asked, “…what would be a better leading indicator than unemployment rate in your opinion?” At a national level, there are economic variables that lead bank C&I credit losses—they’re available for free at FRED—and we won’t completely discard … Continue Reading
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Unemployment as a Commercial Loan Loss Predictor
This the first in a sequence of three posts. The second describes alternatives to the unemployment rate for C&I loss forecasting, and the third one provides more evidence why the unemployment rate is a poor choice for C&I loss forecasting. Recently, we were surprised to learn that many banks … Continue Reading
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