LETTER FROM THE PUBLISHER
Nick Carver - Infopro Digital
This issue sadly marks the conclusion of Michael Gordy’s tenure as editor-in-chief of The Journal of Credit Risk.
Michael has decided to step down after ﬁve years, a period which he indicated at the start of his time as editor-in-chief he thought appropriate to serve. On behalf of the Risk Journals team, the board, contributors and subscribers, I would like to take this opportunity to thank Michael for his leadership of The Journal of Credit Risk, and in particular his drive to improve all aspects of its workings, from submissions to succession planning.
Michael’s desire to improve led us to change not only how we work on The Journal of Credit Risk, but also the processes, requirements and standards across the journals more broadly. As a team, we have not only learned about what we should do, but also about what we should expect. For that we owe him a great deal.
We will miss our interactions with him considerably, although I am pleased to say he will remain very much a part of the Risk family, and I am sure we can look forward to contributions from him in the future.
LETTER FROM THE GUEST EDITORS
Jose J. Canals-Cerda and Paul Calem - Federal Reserve Bank of Philadelphia
It is a pleasure to introduce this special issue of The Journal of Credit Risk, which is dedicated to topics in the ﬁeld of consumer ﬁnance. This issue was spearheaded by the occasion of the 2018 biannual Workshop on Credit Card Lending and Payments, organized by the Federal Reserve Bank of Philadelphia. Some of the papers in this issue were selected from the conference program, but we also considered external paper submissions on related subjects. The four papers included in this special issue excellently represent the broad range of research topics that contribute to our understanding of consumer ﬁnance.
The issue’s ﬁrst paper, “Bankcard performance during the Great Recession: a consumer-level analysis” by Paul Calem, Julapa Jagtiani and Loretta Mester, looks back at the performance of bank card portfolios during the Great Recession and, with the beneﬁt of hindsight, analyzes the sources of model forecasting error and provides plausible explanations for the observed discrepancies between realized and forecasted outcomes. The paper is are minder of the need to interpret model forecasts with caution during periods of unprecedented stress.
Jose J. Canals-Cerda is the author of our second paper: “From incurred loss to current expected credit loss: a forensic analysis of the allowance for loan losses in unconditionally cancelable credit card portfolios”. He contributes a timely analysis of the implementation of the current expected credit loss (CECL) framework – the newly revised accounting standard for calculating the allowance for credit loss – for the special case of portfolios of credit card loans. Canals-Cerda analyzes the impact on the allowance of different implementation assumptions, particularly regarding how card payments are allocated across balance segments with different risk proﬁles. The paper also analyzes the potential impact of macroeconomic forecasting error on CECL allowances. The author’s analysis sheds light on the conceptual and modeling challenges associated with the application of the CECL framework to credit card portfolios.
In “The economics of debt collection, with attention to the issue of salience of collections at the time credit is granted”, the third paper in the issue, Erik Durbin and Charles Romeo develop a novel theoretical framework for assessing the welfare effects of debt collections. They also analyze the conditions under which restrictions on the intensity of debt collection efforts can be welfare enhancing. In addition, the authors analyze the effects of restrictions on debt collection intensity across types of consumers and on overall market outcomes.
Our ﬁnal paper, “The effects of customer segmentation, borrower behaviors and analytical methods on the performance of credit scoring models in the agribusiness sector” by Daniela Lazo, Raffaella Calabrese and Cristian Bravo, contributes to the credit scoring literature in two important dimensions. First, the authors examine credit scoring in the context of a portfolio of agribusiness loans in the Chilean market, thus expanding the literature by analyzing a novel dataset and business line. And second, they contribute to the analysis of best practices in credit scoring by carefully investigating the predictive accuracy contribution of different sources of information and alternative methods.
We believe the reader will ﬁnd the papers in this special issue of The Journal of Credit Risk to be of great interest. We hope you enjoy reading them and ﬁnd them to be of value.
From incurred loss to current expected credit loss: a forensic analysis of the allowance for loan losses in unconditionally cancelable credit card portfolios
The authors analyze the performance of the CECL framework under plausible assumptions about allocations of future payments to existing credit card loans, a key implementation element.
The effects of customer segmentation, borrower behaviors and analytical methods on the performance of credit scoring models in the agribusiness sector
The main aim of this study is to analyze the joint effects of customer segmentation, borrower characteristics and modeling techniques on the classification accuracy of a scoring model for agribusinesses.
The economics of debt collection, with attention to the issue of salience of collections at the time credit is granted
This paper considers the role of policies that protect consumers from aggressive debt collection tactics.
This paper investigates factors associated with high credit card loss rates during the period 2008–11 associated with the Great Recession.