Banks are not taking enough risk if no loans ever go bad after all banks are in the business of providing risk capital at an appropriate price. But given a certain proportion of loans will go bad, how should banks provide for them in their accounts without knowing exactly which ones will tip over?
“Businesses which are losing money because the economy has been brought to a halt but can be expected to survive on the other side are being propped up.
In this time of global pandemic, that is truly a multi-billion dollar question.
Back in the 1990s, after Australias last recession, the banks began to move towards dynamic or expected loss provisioning. Based on history and data modelling, they would set aside provide a certain percentage o…
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