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How to deal with extreme cases for credit risk monitoring: a case study in a credit risk data science company
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Resumo(s)
The Global Financial Crisis triggered a severe hold on credit lending due to the financial
institutions’ inability to assess credit applicants risk levels properly. Based on U.S. data from
Lending Club, we conducted a study to evaluate the consequences of including
macroeconomic risk factors in individual credit application observations. Through historical
scenario stress testing, we find that this approach results in an increase in performance for
credit scoring models developed in a stable economic cycle and applied to a recession. The
inclusion of macroeconomic indicators reveals potential for credit institutions to better absorb
shocks derived from economic downturns.
Descrição
Palavras-chave
Credit scoring Classification Consumer loans Financial stability Stress test Macroeconomic scenarios