New risk assessment model predicts potential bank failures before they happen.
The article discusses a method to measure risks in bank portfolios by looking at how changes in the financial environment can affect potential losses. The researchers used a simulation model to predict future bank capital ratios based on different variables like loan quality and market volatility. They found that the quality of a bank's loans is the most important factor in determining risk levels. Diversifying loans across different sectors and regions can reduce risk, and it's crucial to consider volatility in emerging economies.