New model simplifies loan-loss forecasts. Some say it’s too simple
Modelling approach devised by Commerzbank quant promises to ease computational burden, but may not suit complex portfolios
A new approach to calculating lifetime expected credit losses could greatly reduce the computational burden banks face in complying with new loan-loss accounting rules, but experts say the approach may have only a limited application.
The new technique groups loans into two categories, and performs the calculation on each category, rather than on individual loans, thereby up speeding the process. The approach is outlined in a recent paper by Commerzbank analyst Michael Winands.
The two
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