Cash is King

From GARP –

“Cash flow is at the center of a convergence between financial valuation models and risk models that could dramatically alter the credit risk modeling landscape.

Credit risk measurement will soon undergo a sea-change as a result of the growing importance of cash flow analysis, which has been buoyed by new valuation rules.

The traditional credit risk model that has served many FRM practitioners well during the past decade is the PD/LGD/EAD model. Basically, the riskiness of a loan is expressed in three parameters: the probability that the client will default on his obligations (the probability of default, or PD); the financial loss that is incurred in case of a default as a percentage of the exposure (the loss given default, or LGD); and the exposure at default (EAD) – i.e., the remaining principal of the loan, including missed interest payments.”

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Bankers beware: Technology is going to get you (and none of us will care)

From Computerworld

“Technology is about to transform the banking sector. A September 2013 Aite Group survey of business users showed that many of them already use alternatives to banks, for everything from electronic payments to cash flow forecasting.

Can you blame them? Do any customers love their bank? Have any of us who struggled with the impact of the 2008 crash forgiven the senior bankers who collected eye-watering bonuses? Well, it might be payback time. New technologies are preparing to take a big slice of the traditional banking business.

Bankers have been slow to recognize the technology threat, but it's becoming visible to some of them. Speaking at June's Future of Financial Services conference in London, Barclays chief executive Antony Jenkins warned: "We are on the leading edge of a technology revolution. You can't see it, but it's coming, it's coming hard, and it's coming fast." Here's the problem, though: The banks aren't on the edge of a threat -- the threat is already here.”

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