Bank-feed normalization

Figure 01 / 12

Separate probability, severity, and exposure

The simplified one-year expected loss is PD × LGD × EAD = $5,996.76. PD is 4.62%, LGD is 44.00%, and EAD is $295,000. This is a teaching expected-value calculation, not an accounting allowance method or a capital standard.

Figure data and text version

Input	Value	Unit
PD	4.62	Percent over one year
LGD	44	Percent of exposure lost conditional on default
EAD	295,000	USD at default
Expected loss	5,996.76	USD over the stated horizon

The connected accounts contain sales, owner transfers, debt proceeds, and unusual expenses. A transaction feed is not yet a repayment-capacity measure.

Classify movements with traceable rules and disclose account and period coverage.

All amounts, rates, capacity limits, and outcomes in this case are synthetic. The three conditions are separate assumptions for comparison. A better result in the response condition is not measured proof that the proposed control causes that improvement. The figures expose the calculation and its limits; a real deployment needs its own evidence.

Read the result

The case has $295,000 of exposure. Its stated one-year PD and LGD imply $5,996.76 of expected loss, while the cover analysis leaves $227,500.00 of stress exposure. Monthly cash coverage is 1.28×. These are separate measures: one describes an average under probability assumptions, one describes available cover, and one describes a period’s funding capacity.

Figure 02 / 12

Probability and severity move the result together

Each cell is the same exposure multiplied by the row default probability and the column loss severity. The grid makes joint stress visible. A downturn can affect both factors; the calculation does not assume that the two causes are independent.

Figure data and text version

PD	LGD 25%	LGD 50%	LGD 75%
2%	1,475	2,950	4,425
5%	3,687.5	7,375	11,062.5
10%	7,375	14,750	22,125
20%	14,750	29,500	44,250

Figure 03 / 12

Recorded collateral and eligible cover

The collateral record is $70,000, but a 25% illustrative haircut leaves $52,500.00 eligible in this scenario. Reserve cover adds $15,000. The resulting uncovered exposure is $227,500.00. Eligibility also needs enforceability and operational access; this arithmetic does not establish either.

Figure data and text version

Measure	USD
Recorded collateral	70,000
Eligible collateral	52,500
Recorded reserve	15,000
Combined usable cover	67,500
Uncovered exposure	227,500

Figure 04 / 12

Cash available for the period’s debt service

Defined cash available is $22,748.00 against $17,800.00 of debt service, for a 1.28× ratio. The ratio uses one period and one defined cash measure. It does not establish affordability, suitability, or a required underwriting threshold.

Figure data and text version

Component	USD	Meaning
Cash available	22,748	After the expenses included in this illustration
Debt service	17,800	Principal and interest due in the same period
Cash after debt service	4,948	Negative means a modeled shortfall

Figure 05 / 12

A constant-hazard illustration

The curve converts the stated one-year PD of 4.62% to a constant monthly hazard using h = 1 − (1 − PD)^(1/12). Survival after 12 months is therefore 1 − PD. Constant hazard is an assumption; seasonality and changing exposure are omitted. Horizontal positions are the labeled observations or scenarios; equal spacing does not imply equal numerical increments.

Figure data and text version

Months since start	Survival %
M0	100
M2	99.21
M4	98.44
M6	97.66
M8	96.9
M10	96.13
M12	95.38

Figure 06 / 12

Cumulative expected loss at comparable age

This curve multiplies cumulative modeled default probability by a fixed EAD and LGD. It is useful for separating observation age from the chosen assumptions. It omits amortization, recoveries over time, prepayment, and changing utilization. Horizontal positions are the labeled observations or scenarios; equal spacing does not imply equal numerical increments.

Figure data and text version

Age	Expected USD
M0	0
M2	1,019.26
M4	2,030.52
M6	3,033.84
M8	4,029.27
M10	5,016.89
M12	5,996.76

Figure 07 / 12

Expected loss sensitivity to PD

Exposure stays at $295,000 and LGD stays at 44.00% while PD changes. The linear relationship follows the simplified expected-loss formula. It is not evidence that real-world losses respond linearly to economic stress. Horizontal positions are the labeled observations or scenarios; equal spacing does not imply equal numerical increments.

Figure data and text version

One-year PD	Expected USD
1%	1,298
3%	3,894
5%	6,490
8%	10,384
12%	15,576
20%	25,960

Figure 08 / 12

A shared dependency can dominate exposure

The four amounts are disjoint portions of this case’s exposure. The largest bucket represents one shared supplier, funding source, or other specified dependency. Counting customers alone would not reveal this common loss driver.

Figure data and text version

Dependency bucket	Exposure USD
connected operating account — primary	118,000
Independent group B	88,500
Independent group C	59,000
Independent group D	29,500

Figure 09 / 12

A weak month can disappear inside an average

The six-month path applies explicit seasonal factors to the defined monthly cash amount and compares it with fixed debt service. These are constructed cash assumptions, not a forecast. A negative month needs a funding or terms response even when the average ratio looks comfortable. Horizontal positions are the labeled observations or scenarios; equal spacing does not imply equal numerical increments.

Figure data and text version

Month	Cash available	Debt service
M1	15,923.6	17,800
M2	19,335.8	17,800
M3	25,022.8	17,800
M4	20,473.2	17,800
M5	29,572.4	17,800
M6	26,160.2	17,800

Figure 10 / 12

Terms belong in the decision record

This record concerns normalize before calculating. A binary approval omits the amount, observation horizon, cover assumptions, and review trigger. Retaining those terms makes the decision reproducible and identifies when changed facts require another assessment.

Figure data and text version

Field	Illustrative value
entity	Bank-feed normalization
exposure_usd	295,000
horizon	One year for PD; one month for cash coverage
pd_percent	4.62
lgd_percent	44
review_trigger	Transfers among the owner’s accounts are counted as new sales.

Figure 11 / 12

One cause can affect several loss components

The stress path connects connected operating account to repayment cash, default probability, recovery, and funding needs. Arrows state the scenario’s assumed causal chain. They are hypotheses to test with evidence, not proof that every affected customer will default.

Figure data and text version

Stage	Mechanism
Dependency shock	Transfers among the owner’s accounts are counted as new sales.
Cash pressure	Receipts fall or essential payments move earlier
Default and severity	Repayment probability and recovery can both worsen
Response	Reassess terms, usable cover, and exposure within the approved process

Figure 12 / 12

Expected loss, uncovered exposure, and cash gap

Expected loss ($5,996.76), uncovered exposure ($227,500.00), and monthly cash gap ($0.00) answer different questions. The bars are deliberately separated measures and must not be added. A low expected value can coexist with a large stress exposure.

Figure data and text version

Measure	USD
Expected one-year loss	5,996.76
Uncovered stress exposure	227,500
Monthly cash gap	0

Connect the result to the system

Classify movements with traceable rules and disclose account and period coverage.

Check the population, evidence, permitted action, and actual effect together. A balanced calculation can still use the wrong population; a successful response can still leave an unknown financial outcome. The case’s numerical result applies only to its stated assumptions.