krisadams on Nostr: There’s a scary thing happening in banks right now! Again, as per my previous ...
There’s a scary thing happening in banks right now!
Again, as per my previous paper, you’ll need to take my word for it.
Something quite scary, to me as a risk manager at least, is happening in the banks right now.
Banks are seeing a significant uptick of mortgage applications that are requesting longer terms. By example, I’ve witnessed a doubling of the proportion of new mortgage applications with a greater than 30 year term. Proportions that are fast approaching 50%
Not only that, but I’m also seeing the proportion of new mortgage applications with terms that end in their 70s skyrocketing! This is a metric that historically would be close to 0%, as it would likely be a policy rule not to accept this business. If you want to know more about how banks manage their book see my paper here: A Credit Risk Analyst’s Journey into Bitcoin https://medium.com/@kris.john.adams/a-credit-risk-analysts-journey-into-bitcoin-c035ec86ba1.
That rule appears to be gone in some banks, given I’ve witnessed proportions as high as 20% of new applicants.
If that’s not scary enough for you, here’s the kicker. According to the bank’s risk models, there is apparently no additional risk being taken on by the bank. Meaning they ARE NOT having to put up additional capital for these mortgages on book!
Let me tell you here and now, this is NOT CORRECT! These customers are riskier and additional capital should be getting put aside. Banks have not found a sweet spot in the market.
What is likely happening is that their statistical models used to assess the applicant’s credit risk (again, see my paper if you want an insight into how models assess risk) is under-predicting. Why?
Because the model was trained on data that has NEVER seen these populations of customers before. Meaning it cannot measure the additional risk properly and assumes they are like the normal applicants that come through the door.
This is a big problem, in my opinion, that will likely bite at a later date.
My advice…learn why this couldn’t happen with Bitcoin and act accordingly.
Again, as per my previous paper, you’ll need to take my word for it.
Something quite scary, to me as a risk manager at least, is happening in the banks right now.
Banks are seeing a significant uptick of mortgage applications that are requesting longer terms. By example, I’ve witnessed a doubling of the proportion of new mortgage applications with a greater than 30 year term. Proportions that are fast approaching 50%
Not only that, but I’m also seeing the proportion of new mortgage applications with terms that end in their 70s skyrocketing! This is a metric that historically would be close to 0%, as it would likely be a policy rule not to accept this business. If you want to know more about how banks manage their book see my paper here: A Credit Risk Analyst’s Journey into Bitcoin https://medium.com/@kris.john.adams/a-credit-risk-analysts-journey-into-bitcoin-c035ec86ba1.
That rule appears to be gone in some banks, given I’ve witnessed proportions as high as 20% of new applicants.
If that’s not scary enough for you, here’s the kicker. According to the bank’s risk models, there is apparently no additional risk being taken on by the bank. Meaning they ARE NOT having to put up additional capital for these mortgages on book!
Let me tell you here and now, this is NOT CORRECT! These customers are riskier and additional capital should be getting put aside. Banks have not found a sweet spot in the market.
What is likely happening is that their statistical models used to assess the applicant’s credit risk (again, see my paper if you want an insight into how models assess risk) is under-predicting. Why?
Because the model was trained on data that has NEVER seen these populations of customers before. Meaning it cannot measure the additional risk properly and assumes they are like the normal applicants that come through the door.
This is a big problem, in my opinion, that will likely bite at a later date.
My advice…learn why this couldn’t happen with Bitcoin and act accordingly.