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Charlotte Economics Club
The Charlotte Economics Club’s mission is to provide leadership in the use and understanding of economic information and industry trends that affect our region’s economic growth.
May 19, 2015
Federal Reserve Bank of Chicago
"Stress Tests with Loss Given Default May 19, 2015"
In Dodd-Frank stress tests, banks estimate loan loss as it responds to economic conditions. The response of loss given default (LGD, which is loss divided by exposure) has proved especially challenging to model. This talk introduces a new approach to the LGD puzzle. In this approach, a bank takes what it already knows about a loan and projects LGD as conditions change. The degree of risk agrees with historical experience and might become a standard against which other models are compared. The speaker’s views have not been endorsed by the Federal Reserve or any other supervisory agency.