Revolutionizing Banking: Multi-Year Forecasts Redefine Credit Risk Management
The article explores how to predict future credit losses in banking more accurately by looking beyond just one year. By considering longer timeframes and factors like default probabilities and correlations, researchers found that multi-year forecasts can better estimate potential losses in credit portfolios. This approach can help banks and financial institutions make more informed decisions about economic and regulatory capital, loan pricing, and managing risks associated with products like collateralized debt obligations.