Retail Lending Examination Procedures

Step 2: Calculate loss factors by bucket.

Step 2 is to calculate loss factors for each bucket. To calculate the loss factor from the “current” bucket, multiply all average roll rates from the most recent quarterly average. In this example the fourth quarter average roll rates produce this factor: 3.42% x 42.58% x 67.12% x 72.12%, resulting in a 0.70 percent loss rate for loans in the current bucket. To determine the loss rate for the 30-day accounts, multiply the most recent quarterly averages for the 60, 90, and 120-day buckets, resulting in a loss factor of 20.61 percent. Applying the same method results in a loss factor of 48.41 percent for the 60-day bucket, and 72.12 percent for the 90-day bucket.

Previous: Step 1: Calculate roll rates Next: Step 3: Apply loss factors to the current portfolio.