just curious, to those of you that are covering banks, do you happen to model directly the RWA for banks? if so, how do you go at it (on a general basis)?
I am presenting the question in light of a recent discussion I had with a colleague of mine who (covering banks) told me that even if they are important, he is not doing this estimate directly. Whenn asked about it by clients, he'll come up with an answer which was a mix of peers analysis, mng estimate and his "gut" feeling. when asked if he ever tried to come up with an estimate based on the holdings of the balance sheet and weighing them with the appropriate weights imposed by the regulation, he told me that I was downright crazy and that was unfeasible.
now, given the enormous importance associated with this variable in the space, I was legitimately wondering whether he is overlooking something important or if the due diligence on this particular variable is not to be known to mere mortals. in fact, while i recognize the difficulties in coming up with a reliable "hard" value (yes top mng I am pointing fingers at you for misclassifying stuff), it just strucked me that this calculation was out of our reach.
what about you?
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