Risk Environment Part 1: How to turn the concept of adverse selection to actionable accountability

Recent economic conditions have significantly increased the likelihood of adverse selection.

But what will separate FIs that thrive from those that merely survive? Informed risk management.

Informed risk management requires a data-driven understanding of how much adverse selection is in your portfolio. Successful (read: thriving) institutions closely monitor changes in their adverse selection and adapt risk controls and underwriting policies to mitigate the greatest risk areas.

The right analytics and insights enable lenders to anticipate and brace for impact under various economic scenarios. This is accomplished by calculating a data-intensive index that quantifies the unexplained risk, making actions to mitigate far more meaningful. There is hidden behavioral risk in portfolios exacerbated by recent interest rate increases to fight inflation. Because of this approach, (data at scale and predictive forecasting) calculations, quantifications, and proactive actions can reduce risk and improve returns.

 

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