No doubt banks are recalibrating their financial models today, and higher credit reserves should result.
Last November I wrote about how most banks had expected the unemployment rate to top out at 7.5%. Now, while in the meantime some banks reassessed the economic situation and projected higher 2009 unemployment, I am certain there are banks still clinging to the 7.5% mark.
Well, the January unemployment rate hit 7.6% today. Better change the model inputs.
Given all the bad news and the obvious trends in layoffs, why wouldn’t any Risk group model “worse case” scenarios first, then allow management to review these projections, re-calibrate for the worse and then make positive/negative adjustments as needed? Being reactionary in this economy has put many good companies out of business and it will continue to happen to those companies that wait for data that is already there.