A new metric uses publicly disclosed bank information to better predict credit losses from loans.
Financial crises across the world’s banking system are nothing new, having occurred regularly — if not always predictably — throughout history. Banks, investors, and regulators have sought ways to report and analyze credit risk and profitability as a means to head off such crises, but just how to measure these objectively and fairly remains controversial.
For most banks, lending is the primary activity and source of value creation. Loan yield provides a good estimate of expected interest income. Banks can estimate just how much value they are creating by subtracting expected credit losses from lending against expected interest income from lending, which gives one measure of profitability.
See full Article: http://www4.gsb.columbia.edu/ideasatwork/feature/7329708/A+Better+Standard+for+Credit+Risk#
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