Depository Institutions

Today all depository institutions are besieged by regulators over new rules and requirements surrounding safety and soundness. While large depository institutions currently are staffed and have systems in place to handle these new requirements, small to midsize depository institutions do not. These small to mid-sized institutions are faced with increased operational costs in meeting these new requirements.

At Black Diamond Sentinel (BDS) we have developed a suite of automated effective and efficient tools to address new requirements while reducing operational costs. These systems address items such as determining Probability of Default (PD), Loss Given Default (LGD) and stress testing to meet regulatory requirements. BDS systems are not only designed to assist depository institutions meet regulatory requirements but are holistically integrated so that the banks consumers are engaged in such a fashion whereby operational risks are drastically reduced.

Banks which collect deposits from ordinary savers play a key role in the payment and credit system. Banks with depositors are insured by specialized institutions such as the Federal Deposit Insurance Corporation (FDIC). Regulators carefully watch over the risk that a bank with depositors takes. For example, regulators impose on them a unique set of minimum required regulatory capital rules.

National governments therefore have a very direct interest in ensuring that banks calculate a probability of default for each mortgage and remain capable of meeting their obligations since they wish to limit the cost of the government "safety net" in the case of a bank failure. By acting as a buffer against unanticipated losses, regulatory capital helps to privatize a burden that would otherwise be borne by national governments. Regulators also try to make sure that banks are well-enough capitalized to avoid a systemic "domino effect," whereby an individual bank failure, or the fear of such a failure leading to a run on a bank, propagates to the rest of the financial system. Regulatory capital is based on the size of the mortgage as well as the probability of default and potential loss given a default of the mortgage.