Challenges to modelling
Constructing an accurate financial model for the Current Expected Credit Loss (CECL) may present problems to some banks. Possibly a bank is collecting data for annualized charge-off rates. However, that would overlook the question: “how would that inform someone as to the loss rate over the lifetime of the portfolio?” asked Michael Gullette, SVP, Tax and Accounting at the American Bankers Association. The question boils down to whether a bank has enough data of the right kind to see trends and relationships. “And if you have the data, what is the quality?” Gullette said. He was part of a round-table discussion […]
Never too early to start
The “reasonable and supportable” clause of the new Current Expected Credit Loss (CECL) standard “is the most hotly debated part” of the regulation, according to Cristian deRitis, Senior Director, Consumer Credit Analytics at Moody’s Analytics. He was part of a round-table discussion about the transition to CECL that was webcast by the Global Association of Risk Professionals (GARP) on January 10, 2018. CECL is the new credit impairment standard under Financial Accounting Standards Board (FASB). “Auditors are grappling with what ‘reasonable and supportable’ means, too,” he added. For best practice in terms of modelling credit risk, the phrase boils down to whether […]
It’s all about the benchmark
The costs of financial transactions (in either the bond or stock markets) are quoted as bid and ask prices relative to the prevailing market price. But what, really, is meant by “prevailing market price” of thinly traded bonds? Two panellists discussed fixed income transaction cost analysis (TCA) at a webinar sponsored by the Global Association of Risk Professionals on December 12, 2017. Paul Daley, Managing Director at BondWave Information Lab, compared the market microstructure for stocks and bonds. BondWave LLC is a financial technology company and registered investment advisor that provides solutions to facilitate individual bond investing. “Data is the […]
Lower Bond Trading Costs
As the fixed income market evolves, what are the challenges and general directions of transaction cost analysis (TCA)? How can bond investors spend their money more wisely? “The same kind of conversation we used to have with equity dealers … can now occur with fixed income dealers. That means competition will drive down transaction costs,” said Henry Marigliano, Director at FIS Global Trading. FIS is an international provider of financial services technology. He was the was the first of two panellists discussing fixed income transaction cost analysis at a webinar sponsored by the Global Association of Risk Professionals on December […]
Early Warning Signs
“Overall, the energy sector remains stressed,” said Irina Baron, Associate Director at Moody’s Analytics. Baron was the third and final panellist discussing new dynamics in the handling of financial risk management in the energy sector at a webinar sponsored by the Global Association of Risk Professionals on November 29, 2017. Based on expected default frequency (EDF), 75 percent of US publicly-traded companies in the energy sector are not investment-grade risks. “Agency ratings give us a sense of which firms are more likely to default,” she noted. The drawback is that the realized default rate cannot be forecast. However, the expected […]
Managing Risk in Volatile Sector
Market observers have conflicting expectations, especially in the highly changeable energy sector. How can a talented analyst stay on top of it? Mehna Raissi, Senior Director at Moody’s Analytics, was the second of three panellists discussing new dynamics in the handling of financial risk management in the energy sector at a webinar sponsored by the Global Association of Risk Professionals on November 29, 2017. “Between 2008 and 2013, we were worried about rising oil prices,” Raissi said. However, “in the second half of 2014, oil prices came down and the headlines read: Recession caused by low oil prices.” Oil prices […]
New Dynamics in Energy Sector
How can financial risk be measured and managed in a volatile industry such as the energy sector? What are some of the common industry challenges? Due to low commodity prices and technological changes in the industry, there are new dynamics in the handling of financial risk management in the energy sector. Three speakers addressed specific changes in a webinar sponsored by the Global Association of Risk Professionals on November 29, 2017. “Sometimes the things we think we know, we don’t,” said Gordon Goodman of NRG Energy, the first of three speakers at the webinar. Goodman’s claim to fame is publication […]
Geopolitical Risk
What’s with Russia and cyber-hacking? How did it happen, and why? Geopolitical risk threatens the very fundamentals of market stability and the world order. The Global Association of Risk Professionals treated its members to a “big picture” risk topic during the webinar on November 1, 2017. Former senior US intelligence officer Jack Thomas Tomarchio, who is now a principal with the Agoge Group, LLC, described the current geopolitical risk due to Russian cyber-attacks. “Russia was declared to be responsible for leaks at the Democratic National Convention in 2016,” Tomarchio said. “The DNC is supposed to be neutral, but the leaks […]
Myths of CECL
The time for proper accounting of credit impairment is running out. How prepared is your team? Do you even know what the biggest concern of the auditors will be? This was the call to action voiced by Tom Caragher, Senior Product Manager of Risk and Performance at Fiserv, a US provider of financial services technology on October 26, 2017. He spoke about implementation of current expected credit losses (CECL) at a webinar sponsored by the Global Association of Risk Professionals. (Note that CECL is the impairment standard under Financial Accounting Standards Board (FASB).) “When it comes to CECL, there are many […]
8 Ways to Look at Deforestation Risk
“Forests are the lungs of our land, purifying the air,” wrote Franklin D. Roosevelt. Looking at the economic side, what does the loss of forests mean to global markets? “Deforestation is a risk to the supply chain,” said Gabriel Thoumi, Director Capital Markets at Climate Advisers. “It puts billions of dollars at risk.” He was the first of four presenters at the May 4, 2017, webinar sponsored by the Global Association of Risk Professionals. He began with a summary of the activities of Chain Reaction Research, a group which has been actively assessing the sustainability of the supply chains of […]