Where good-bad analysis cannot be used due to a lack of default data, the ‘shadow-bond method’ offers a less robust but statistically valid alternative. Here the ability of financial factors to predict default is modelled by measuring their ability to predict external rating agency default rates.
More than ten years after the rollout of Basel 2, many lending institutions in Canada are still using the Standardized Approach (SA) for regulatory reporting. As a consequence, reporting institutions are either setting aside disproportionately higher capital for their loan book, are engaged in regulatory arbitrage by issuing residential real estate loans, or are involved in "originate-to-distribute" lending. All of these aforementioned consequences contribute to higher systemic risk.
How to meeting pre-payment challenge at the time of mortgage renewal for held-to-maturity and held-for-sale retail mortgages?