Describes an initiative to estimate municipal bond default probabilities. The project was commissioned in December by the California State Treasurer's Office. Slides were presented at the Open Source Finance Meetup in San Francisco.
In this presentation Gopalkrishna Rajagopal talks about what a financial company is, with examples of who they are and what they do. And goes through the key sectors and the business model they have in place at the Williams Capital Group.
Credit Reports & Scoring is designed to help individuals understand their role and responsibilities when viewing credit reports. It will prepare Mortgage Loan Originators with the required knowledge in order to successfully analyze a borrower's credit report. You will obtain a clear understanding of the types of credit reports and how to access these reports. For more info: www.nafcu.org/genworth
Predictive Model for Loan Approval Process using SAS 9.3_M1Akanksha Jain
This is a Predictive Model which uses Logistic Regression to statistically help make better loan approval decisions in future for a German Bank. It uses an historical credit data set with 1000 data points and 20 variables.
Tool used:
SAS 9.3_M1
Steps Involved are:
- Data Quality check using Correlations and VIF Tests
- Analysis of different Variable Selection Methods such as Forward, Backward and Stepwise
- Variable Selection on the basis of Parameter Estimates and Odds Ratio
- Outlier Analysis to identify the outliers and improve the model
- Final Model Selection Decision based on ROC curve, Percent Concordant, PROC Rank and Hosmer Lemeshow Test
In this presentation Gopalkrishna Rajagopal talks about what a financial company is, with examples of who they are and what they do. And goes through the key sectors and the business model they have in place at the Williams Capital Group.
Credit Reports & Scoring is designed to help individuals understand their role and responsibilities when viewing credit reports. It will prepare Mortgage Loan Originators with the required knowledge in order to successfully analyze a borrower's credit report. You will obtain a clear understanding of the types of credit reports and how to access these reports. For more info: www.nafcu.org/genworth
Predictive Model for Loan Approval Process using SAS 9.3_M1Akanksha Jain
This is a Predictive Model which uses Logistic Regression to statistically help make better loan approval decisions in future for a German Bank. It uses an historical credit data set with 1000 data points and 20 variables.
Tool used:
SAS 9.3_M1
Steps Involved are:
- Data Quality check using Correlations and VIF Tests
- Analysis of different Variable Selection Methods such as Forward, Backward and Stepwise
- Variable Selection on the basis of Parameter Estimates and Odds Ratio
- Outlier Analysis to identify the outliers and improve the model
- Final Model Selection Decision based on ROC curve, Percent Concordant, PROC Rank and Hosmer Lemeshow Test
Altman Z-Score+ mobile, wearable, web, PC-based Apps, web service and Bloomberg Terminal app provides the client with timely assessments of the credit risk and probability of default of companies on a global basis based on the famed and well tested Altman Z-Score family of models. Business Compass LLC has teamed up with the creator of the Z-Score model, the international global expert on credit risk, Dr. Edward I. Altman, Max L. Heine Professor of Finance at the NYU Stern School of Business and Director of the NYU Salomon Center’s Credit and Debt Markets Program, to provide this important tool for corporate credit analysis. This product makes analysis of 70,000+ companies trading worldwide over 130+ exchanges. Our web site address is altmanzscoreplus.com.
Expert Judgement Credit Rating for SME & Commercial CustomersMike Coates
A high-level presentation from GBRW Consulting on some of the key issues relevant to developing and then implementing a sound credit scoring and rating system for Small- to Medium-sized Enterprises (SMEs) and commercial banking customers. It focuses on the implementation of an 'expert judgement' approach to credit rating as an alternative to statistical approaches where data is inadequate. It is particularly relevant for emerging market or start-up banks where historical financial statement analysis may be easily accessible or reliable.
Consumer Credit Scoring Using Logistic Regression and Random ForestHirak Sen Roy
Project Details: In this study, the concept and application of credit scoring in a German banking environment is
explained. A credit scoring model has been developed using logistic regression and random forest. Limitations of
the model are explained and possible solutions are given with an overview of LASSO.
Guide: Dr. Sibnarayan Guria, Associate Professor and Head of the Department, Department of
Statistics, West Bengal State University
Language Used: R
What is Just: Education, Excellence and Equity Laurie Posner
Presentation delivered as part of Difficult Dialogues Spring Forum: What is Fair? What is Just?, convened by The Humanities Institute at the University of Texas at Austin.
For more information:
humanitiesinstitute.utexas.edu
www.idra.org
Between 1892 and 1997, a total of 2.1 million people were deported from the United States. A change in laws in 1996 permitted the number of deportees to increase from 70,000 in 1996 to 114,000 in 1997. In 1998, the number of deportees rose to 173,000. The numbers stayed fairly steady until 2003, when the creation of the Department of Homeland Security (DHS) infused more money into immigration law enforcement and 211,000 people were deported. From there the numbers have continued to rise – peaking at just over 400,000 in 2012. These numbers are unprecedented: by 2014 President Obama will have deported over 2 million people - more in six years than all people deported before 1997. However, there is more to this trend than these numbers. The content of policies has also changed. There have been relatively low numbers of returns as compared to removals, a reflection of a focus on interior enforcement. There has been a shift towards the deportation of convicted criminals. With these trends, unprecedented numbers of people have been separated from their families in the United States. Obama has not only deported more people than any President; he also has separated more families by focusing on interior enforcement.
Energy Return on Energy Investment with Professor Charles Hall.
A dynamic look in detail at Energy Return on Energy Investment, from one of the top thinkers on the subject.
Altman Z-Score+ mobile, wearable, web, PC-based Apps, web service and Bloomberg Terminal app provides the client with timely assessments of the credit risk and probability of default of companies on a global basis based on the famed and well tested Altman Z-Score family of models. Business Compass LLC has teamed up with the creator of the Z-Score model, the international global expert on credit risk, Dr. Edward I. Altman, Max L. Heine Professor of Finance at the NYU Stern School of Business and Director of the NYU Salomon Center’s Credit and Debt Markets Program, to provide this important tool for corporate credit analysis. This product makes analysis of 70,000+ companies trading worldwide over 130+ exchanges. Our web site address is altmanzscoreplus.com.
Expert Judgement Credit Rating for SME & Commercial CustomersMike Coates
A high-level presentation from GBRW Consulting on some of the key issues relevant to developing and then implementing a sound credit scoring and rating system for Small- to Medium-sized Enterprises (SMEs) and commercial banking customers. It focuses on the implementation of an 'expert judgement' approach to credit rating as an alternative to statistical approaches where data is inadequate. It is particularly relevant for emerging market or start-up banks where historical financial statement analysis may be easily accessible or reliable.
Consumer Credit Scoring Using Logistic Regression and Random ForestHirak Sen Roy
Project Details: In this study, the concept and application of credit scoring in a German banking environment is
explained. A credit scoring model has been developed using logistic regression and random forest. Limitations of
the model are explained and possible solutions are given with an overview of LASSO.
Guide: Dr. Sibnarayan Guria, Associate Professor and Head of the Department, Department of
Statistics, West Bengal State University
Language Used: R
What is Just: Education, Excellence and Equity Laurie Posner
Presentation delivered as part of Difficult Dialogues Spring Forum: What is Fair? What is Just?, convened by The Humanities Institute at the University of Texas at Austin.
For more information:
humanitiesinstitute.utexas.edu
www.idra.org
Between 1892 and 1997, a total of 2.1 million people were deported from the United States. A change in laws in 1996 permitted the number of deportees to increase from 70,000 in 1996 to 114,000 in 1997. In 1998, the number of deportees rose to 173,000. The numbers stayed fairly steady until 2003, when the creation of the Department of Homeland Security (DHS) infused more money into immigration law enforcement and 211,000 people were deported. From there the numbers have continued to rise – peaking at just over 400,000 in 2012. These numbers are unprecedented: by 2014 President Obama will have deported over 2 million people - more in six years than all people deported before 1997. However, there is more to this trend than these numbers. The content of policies has also changed. There have been relatively low numbers of returns as compared to removals, a reflection of a focus on interior enforcement. There has been a shift towards the deportation of convicted criminals. With these trends, unprecedented numbers of people have been separated from their families in the United States. Obama has not only deported more people than any President; he also has separated more families by focusing on interior enforcement.
Energy Return on Energy Investment with Professor Charles Hall.
A dynamic look in detail at Energy Return on Energy Investment, from one of the top thinkers on the subject.
El impacto de las tecnología de la información y la comunicación en la práctica científica ha sido una transformación en todos los procesos científicos.
Presentation to SEC Staff: Open Source Alternatives to Credit RatingsMarc Joffe
This is a slide presentation I gave to members of the Office of Credit Ratings in January 2013. It outlines a proposal I will be making as a participant in the May 2013 SEC Credit Ratings Roundtable.
how can i use my minded pi coins I need some funds.DOT TECH
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As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
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@Pi_vendor_247
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@Pi_vendor_247
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The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
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@Pi_vendor_247
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1. TOWARD MUNICIPAL CREDIT
SCORING
Marc D. Joffe
Open Source Finance Meetup
January 10, 2013
Public Sector Credit Solutions Phone: 415-578-0558
640 Davis Street Unit 40 marc@publicsectorcredit.org
San Francisco, CA 9411 USA http://www.publicsectorcredit.org/pscf.html
2. Municipal Bonds and Ratings
Municipal bonds:
• Usually issued to pay for infrastructure
• Payments spread out over the life of new facilities
• Interest and principal payments often come from tax revenues
• Higher interest rates mean either higher taxes or fewer services
Municipal bond ratings:
• Paid for by cities and other local agencies
• Letter grades assigned by Moody’s, S&P and Fitch
• These agencies also rate corporate and structured bonds
• Unclear as to what these grades mean in terms of default risk
• Researchers have found that municipal bond ratings are more severe than
corporate bond ratings. For example, a city rated A may be about as risky
as a company that is rated AA+
Public Sector Credit Solutions Phone: +1-415-578-0558
640 Davis Street Unit 40 marc@publicsectorcredit.org
San Francisco, CA 9411 USA http://www.publicsectorcredit.org/pscf.html 2
3. An Alternative: City Credit Scores
Some well known applications:
• California’s Academic Performance Index
• BCS Computer Rankings
• Consumer Reports Product Ratings
• US News College Rankings
Approach:
• Use a composite of measurable issuer attributes
• Transparent methodology
• Ideal score would take the form of a default probability
Benefits
• Easy to keep current
• Can be applied to all issuers – even those that don’t purchase ratings
Public Sector Credit Solutions Phone: +1-415-578-0558
640 Davis Street Unit 40 marc@publicsectorcredit.org
San Francisco, CA 9411 USA http://www.publicsectorcredit.org/pscf.html 3
4. Why a Default Probability?
• Default probability scores would allow us to estimate “fair value” yields
for municipal bonds
• Other components of fair value include:
Recovery rate
Risk premium
Tax treatment adjustments
• Fair value (aka intrinsic value) calculations are common for corporate
and structured bonds – we could improve transparency and liquidity
by applying this technique to munis
• A widely accepted system that translates fiscal changes to updated
default probabilities and fair bond yields would assist issuers in
analyzing the debt service impact of their policy choices
Public Sector Credit Solutions Phone: +1-415-578-0558
640 Davis Street Unit 40 marc@publicsectorcredit.org
San Francisco, CA 9411 USA http://www.publicsectorcredit.org/pscf.html
5. Estimating Default Probabilities
• Different types of models have been developed for different asset
classes.
• The most relevant asset class for our purpose is debt issued by private
(i.e., unlisted) firms.
• The dominant methodology for estimating private firm default
probability involves the following:
Gather data points for a large set of firms that have defaulted and for
comparable firms that have not defaulted
Use theory and statistical analysis to determine a subset of variables that
distinguish between defaulting and non-defaulting firms
Use statistical software to fit a model on the selected variables. Data for
current issuers can then be entered into the model to calculate their
default probabilities
• George Hempel applied this approach to municipal bonds, but only
had access to a small data sample.
Public Sector Credit Solutions Phone: +1-415-578-0558
640 Davis Street Unit 40 marc@publicsectorcredit.org
San Francisco, CA 9411 USA http://www.publicsectorcredit.org/pscf.html
6. Applying this Approach
• Problem: Lack of recent defaults.
Income Securities Advisors’ database contains fewer than 40 general
obligation and tax supported bond defaults between 1980 and mid-2011.
Annual Municipal Bond Default Rates By Number of Issuers
4.00%
3.00%
2.00%
1.00%
0.00%
1920
1923
1926
1929
1932
1935
1938
1941
1944
1947
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
Source: Kroll Bond Rating Municipal Bond Study (2011)
• Solution: Follow the example of Reinhart & Rogoff (2009) by looking
at older defaults.
Public Sector Credit Solutions Phone: +1-415-578-0558
640 Davis Street Unit 40 marc@publicsectorcredit.org
San Francisco, CA 9411 USA http://www.publicsectorcredit.org/pscf.html
7. Gathering the Default Data
• Sources
• Old Moody’s bond manuals
• Old Census reports
• Newspaper accounts
• Records at state archives
• Technologies
• Some resources on Google books
• Library material needs to be photographed with proper lighting and a good
camera
• Photographs can be processed by Abbyy FineReader, which perfoms Optical
Character Recognition and can convert inputs to PDFs or spreadsheets
• Older material is usually too difficult to process automatically so offshore data
entry personnel were used
Public Sector Credit Solutions Phone: +1-415-578-0558
640 Davis Street Unit 40 marc@publicsectorcredit.org
San Francisco, CA 9411 USA http://www.publicsectorcredit.org/pscf.html
8. US Municipal Bond Defaults: 1920 to 1939
Yellow = Special Districts
Red = School districts
Green = Cities, States
and Counties
Source: Public Sector
Credit Solutions Default
Database
• Over 5000 defaults in all
• Defaults heavily concentrated in specific states, esp. Florida, the
Carolinas, Arkansas, Louisiana, Texas, New Jersey, Michigan, Ohio and
California
• No defaults reported in Maryland, Delaware, Connecticut, Vermont and
Rhode Island
Public Sector Credit Solutions Phone: +1-415-578-0558
640 Davis Street Unit 40 marc@publicsectorcredit.org
San Francisco, CA 9411 USA http://www.publicsectorcredit.org/pscf.html
9. Drivers of Depression-Era Defaults
• Poor control of municipal bond issuance in certain states such as Florida
(which had outlawed state debt), Michigan, New Jersey and North
Carolina.
• Many defaults stemmed from bank failures and bank holidays. When
banks holding sinking funds and other municipal deposits were not
open, issuers could not access cash needed to perform on their
obligations.
• Prohibition had eliminated alcohol taxes as a revenue source; local income
and sales taxes had yet to become common. Cities were thus heavily
reliant on real estate taxes. When real estate values fell and property tax
delinquencies spiked, many issuers became unable to perform.
• Many defaults occurred in drainage, irrigation and levee districts. Bonds
funding these agricultural infrastructure projects were serviced by taxes
paid by a small number of farmers or farming companies. A single
delinquency could thus trigger a default.
Public Sector Credit Solutions Phone: +1-415-578-0558
640 Davis Street Unit 40 marc@publicsectorcredit.org
San Francisco, CA 9411 USA http://www.publicsectorcredit.org/pscf.html
10. Interest Expense to Revenue Ratio
• US Census reported annual Interest as a Percentage of Revenue
fiscal data for major cities Defaulting and Non-Defaulting Cities
annually in the 1930s, so this
.4
ratio may be calculated.
Interest as a Percentage of Revenue
• The box and whisker diagram at
.3
the right compares the ratio for
defaulting and non-defaulting
.2
cities.
• Mean ratio for defaulting cities
was 16.1% versus 11.0% for
non-defaulters. .1
• High ratio non-default
0
observations were concentrated No Default Default
in Virginia – which has a unique
law requiring the State to cover
municipal bond defaults.
Public Sector Credit Solutions Phone: +1-415-578-0558
640 Davis Street Unit 40 marc@publicsectorcredit.org
San Francisco, CA 9411 USA http://www.publicsectorcredit.org/pscf.html
11. Next Steps
• Interest to revenue ratios could be one of a number of metrics used to
create a municipal default probability score. Another useful metric is
Annual Revenue Change – found to be statistically significant at p < .05.
• Other metrics in the model will need to address:
• Vulnerability to revenue declines.
• Proportion of “unmanageable” expenses (aside from interest) that will
confront issuers in the near to intermediate term – pension costs being the
most prominent example.
• Once the algorithm is developed scores should be regularly computed and
made widely available
• While not a full replacement for fundamental credit analysis, municipal
credit scoring promises to improve market access for smaller issuers and
encouragement alignment of bond yields and underlying risks
Public Sector Credit Solutions Phone: +1-415-578-0558
640 Davis Street Unit 40 marc@publicsectorcredit.org
San Francisco, CA 9411 USA http://www.publicsectorcredit.org/pscf.html
12. An Open Data Challenge
• Once the model is available, it needs to be run with data from today’s
cities.
• Unfortunately, I don’t know of any free, comprehensive database that
contains updated city financial data.
• Instead, data is locked in PDFs produced by each city and stored on its web
site. Most of the data is in two types of documents:
• Budgets
• Comprehensive Annual Financial Reports
• Bigger cities also publish interim reports
• PDF formats vary from city to city and change from year to year.
• Gathering these PDFs and extracting data from them are major challenges.
Public Sector Credit Solutions Phone: +1-415-578-0558
640 Davis Street Unit 40 marc@publicsectorcredit.org
San Francisco, CA 9411 USA http://www.publicsectorcredit.org/pscf.html