A consumer bank could be setting prices with an outdated cost of risk

If credit deteriorates, it would be worth checking whether expected losses on new cohorts exceed those built into the price.

Pricing and origination could incorporate that deterioration with a lag. The current recovery cost could differ from the one used when the loans were priced.

Whoever decides origination would need to check whether they receive that cost or whether recovery is managed only as an operation. With internal data, they could compare expected losses on new cohorts with those built into the price.

With a Decision System within Execution on Decision Systems, the aim would be to coordinate credit and recovery through common assumptions, internal charges, and limits.

Does your bank price this quarter's consumer credit with the current recovery cost or with last year's?

The full Perspective, with its sources, is available on request.