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150 Oil? What Would This Mean for Your Bank?

The RMA Journal, 2011-07, Vol.93 (10), p.30 [Peer Reviewed Journal]

Copyright Robert Morris Associates Jul/Aug 2011 ;ISSN: 1531-0558

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  • Title:
    150 Oil? What Would This Mean for Your Bank?
  • Author: Buczynski, Rick ; Molavi, Justin
  • Subjects: Automobile dealers ; Construction industry ; Credit policy ; Crude oil prices ; Economic conditions ; Economic recovery ; Energy economics ; Energy policy ; GDP ; Gross Domestic Product ; Portfolio investments ; Profit margins ; Recessions ; Service stations
  • Is Part Of: The RMA Journal, 2011-07, Vol.93 (10), p.30
  • Description: In recent months, political tensions in the Middle East and signs of a sustained global economic recovery have raised concerns that crude oil prices could spike as they did in mid-2008 -- with consequences similar to those of the oil-shock decade. Bankers are wondering about the effect such an outcome would have on portfolio quality, and regulators are fueling their angst by insisting, in many cases, that banks undertake a "sensitivity analysis" to determine the effects of $150-per-barrel oil on their portfolios. Although single-factor sensitivity analysis has some merit, it can lead to horribly misleading results and serious errors in credit policy. Higher prices undermine demand in a weakened economy, trimming the sails of hyped-up energy prices. This consequence is amplified as other non-oil commodity prices spiral up, eroding the disposable incomes of households and the profit margins of many businesses.
  • Publisher: Philadelphia: Robert Morris Associates
  • Language: English
  • Identifier: ISSN: 1531-0558
  • Source: AUTh Library subscriptions: ProQuest Central
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