What are “characteristics” of balance sheet assets that the Model measures?
“Characteristics” refer to the normal features and attributes of all bank assets. Real estate loans are typically collateralized, so “collateral” would be a normal characteristic of such a loan. Portfolios have a multitude of financial characteristics, of course, and the Invictus Model identifies them all. The Invictus Model subjects the balance sheet to assumptions of economic stress that potentially exploit asset vulnerabilities and cause impairment. In other words, “characteristics” in the Model pinpoint inherent asset weaknesses that tend to remain unaffected in robust economic markets, but are potentially deleterious to value in bad markets. The fact that all assets have a potential for an “upside” and a “downside” is, of course, ordinary and in the nature of banking. But in a recessionary environment, prudent banks — and their regulators — want to know how serious these potential vulnerabilities are, particularly at the enterprise level as it moves forward in the next two years.
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