M&T Bank (United States)

"This book provides organizations with insights into practical and applied solutions, frameworks, technologies and practices on technological and organizational factors in information security" - Provided by publisher

Multiple discriminant analysis (MDA) is frequently used to develop statistical credit-scoring models for loan evaluation purposes. Current legislative efforts to insure that credit is being granted in a nondiscriminatory manner have focused considerable attention on the reliability of such models. This article examines the theoretical requirements of the MDA model in the context of a realistic lending situation and illustrates the extent of bias when these theoretical assumptions are not fully met. The article concludes that failure to rigorously meet all the theoretical assumptions of the statistical model may not be as critical as insuring that credit managers fully understand the limitations of these types of decision tools. Furthermore, the evidence indicates that statistical models other than multiple discriminant analysis are possibly more relevant to the credit-granting decision.

ABSTRACT: The significant factors in oil and gas loan evaluation have been shifting in recent years. Although reserve analyses and their associated production rates remain basic to an analysis, the economic factors of pricing may frequently involve a greater sensitivity to loan safety than reservoir interpretation. This paper comments on these changes and on the problems of political risk. A plea is made for realistic evaluations and a recognition that problem credits hurt the borrowing institutions as well as the lenders.