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Being underwater is one of the biggest indicators of default, experts said.
We would also point out that our sovereign ratings have an excellent track record as indicators of default risk".
Traditional ratings carry far too much weight, given their narrow primary purpose as indicators of default probability.
Potentially useful indicators of default risk include a borrower's credit scores (Iyer et al. 2009), demographic information (Kumar 2007), and social network (Lin et al. 2013; Liu et al. 2015).
Models of that kind are appealing in their simplicity, but their main disadvantage lies in their inability to account for the coexisting effects of many different indicators of default.
And, while government debt would remain in the ECB's collateral framework (together with more than 32,000 other securities), it would have appropriate haircuts that rise with market indicators of default risk.
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Research, however, has shown that student debt amounts are not a good indicator of default.
"When the share of lower-grade issuance (particularly at the B- level or lower) exceeds 30% for a sustained period of time," says S&P, "it generally serves as a reliable indicator of imminent default pressure two or three years ahead".Most investors in the junk market, of course, do not intend to be around that long.
Lender's are beginning to report that loan-to-value ratios are better indicators of the likelihood of default than borrowers' FICO scores, a widely used metric of creditworthiness developed by Fair, Isaac.
In a study last year, the International Monetary Fund concluded that ratings were a reasonably good indicator of sovereign-default risk.
Infosys began to monitor the credit default swap rate of every large client as a leading indicator of the likelihood of default.
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