Covid-19 overwhelmed stress-testing models – banks
Risk USA: lenders forced to apply management overlays to models skewed by macro inputs
Covid-19 has forced US banks to revise the core assumptions and methodologies underpinning their stress-testing models, according to senior risk managers, leading them to give greater weight to expert judgement and accelerating a trend towards the use of alternative datasets.
Models that rely on macroeconomic variables as inputs – those used to gauge credit risk capital requirements, estimate future loan losses, or for regulatory or internal stress-testing programmes, for instance – struggled
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