Banks struggling with Covid-era risk management as stat models only good as history
A huge struggle for banks with this ongoing pandemic. As you well know, statistical models are only good as the history: with sharp change (esp. unemployment rate), there is a disconnect in the model. So how does this bode for banks?
Management overlay and qualitative adjustment abound.
Colleagues at banks of various sizes across the US are saying: Going to need a lot of rabbits pulled out of hats this quarter to prevent reserve releases across the banking sector.
Even the U.S. unemployment rate — as one of the most reliable statistics in economics — is becoming less so. See why in the attached research note.
