Moody's Analytics is seeking to help banks manage interest rate risk and determine how different economic shocks would affect their credit portfolios.
It will introduce two new risk management models as part of its updated RiskFrontier 4.0 software, according to a press release Monday.
The interest rate risk model incorporates credit risk analysis, allowing banks and other financial institutions to make more informed decisions about their fixed-rate bond portfolios, according to Ammon Levy, head of portfolio research at Moody's.
"You might pay off a bond early because interest rates drop and you could finance yourself more cheaply, or you might pay it off early if your credit quality improves and you're able to get a better rate," Levy says. "Recognizing that both of these components impact your decisions, a model that unifies those dynamics is pretty powerful."
Its expanded model for simulation-based stress testing allows banks to project losses under abstract economic scenarios recommended under the Federal Reserve's comprehensive capital analysis and review, and under other hypothetical situations such as a collapse of the auto lending market.