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Citizens / RBS NPR Comments

QUESTION

Q 1: The agencies seek comment on and empirical analysis of the appropriateness of the proposed rule’s AVCs for wholesale exposures in general and for various types of wholesale exposures (for example, commercial real estate exposures).

Q 2: The agencies seek comment on and empirical analysis of the appropriateness and risk sensitivity

of the proposed rule’s AVC for residential mortgage exposures – not only for long-term, fixed-rate mortgages, but also for adjustable-rate mortgages (ARMs), home equity lines of credit, and other mortgage products – and for other reta

il

portfolios.

Appendix March 2007

CFG/RBS Comments No comment.

As default estimation is largely performed at the segment or “risk grade” level, the correlation effects are implicitly included in the estimation process. Little

empirical evidence exists to support meaningful AVC’s on ARMs, home equity lines of credit or portfolios which exhibit very high prepayments. We recommend that agencies consider lowering the proposed AVC values for mortgages.

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