As growth has slowed in 2019, we are reminded of the Great Recession, and we are increasingly on the lookout for the next one. It’s a question of when—not if—a recession will arrive. Now is the time to prepare so we are not only ready but also poised for growth when the next recession is here.
What tools position you to be recession ready? PayNet has teamed up with Keybridge to offer recession readiness that will help you mitigate risk while keeping an eye on growth. Keybridge is a boutique economic and public policy consulting firm with nearly two decades of experience delivering analysis and advice that shapes business decisions and drives policy debates.
Pairing Keybridge perspective with PayNet tools is a winning combination. Here are the next steps you can take to understand where your risk is and what’s in your portfolio:
Forward-Looking Risk Ratings
Historical defaults from credit scoring models are commonly mistaken for “probabilities of default” when in fact they are the default rates that existed when the model development sample was created. To ensure they are truly ready for a slowdown, lenders should instead use risk ratings that project probabilities of default over the next several years. PayNet produces statistical estimates of Probabilities of Default (PD) for each business borrower in a lender’s portfolio – up to eight quarters ahead.
Stress testing provides measurable views of credit risk through economic cycles and creating scenarios that are appropriate to your geographic location and local economy is essential to this process. PayNet generates scenario-based probability of default predictions at the individual obligor level. As a result, lenders see lower operating costs; reduced hours complying with regulatory requirements; a bolstered reputation among external parties; and the ability to implement strategies for managing capital over a nine-quarter planning horizon.
Industry and State Recession
Elasticity Metrics Recessions impact different sectors of the economy in different ways and to different degrees. Depending on portfolio composition, a lender may be more or less at risk when the next downturn comes. Keybridge’s industry- and state-specific recession elasticities will help financial institutions identify the hidden risks in their portfolios in a recessionary environment and leave them better positioned to weather the storm.
Monthly Recession Monitor
Based on a set of economic indicators with a proven track record of signaling an impending recession, stay on top of the situation each month as Keybridge monitors the potential for recession.
Monthly Recession Severity Index
How bad will the next recession be? Keybridge’s Recession Severity Index provides a monthly assessment using a proprietary set of reliable indicators to help you ensure you’re on track with your recession readiness plan.
Putting It All Together - Recession Readiness Options
There’s no question a recession is coming, sooner or later. Now is the time for you to be proactive and invest in the resources and technologies that will bolster your organization against the potential effects of a recession. By taking the time to prepare, organizations can better focus their energies during a recession not merely on staying alive but on growing their relationships and—by extension—their communities. When Main Street thrives, we all thrive.
To learn more, contact us.