Credit loss database reveals holes in Basel’s IRB formula
Researcher has used two decades of data to propose improved internal model methodology
When the Basel Committee on Banking Supervision first permitted banks to model their own credit risk capital requirements as part of the Basel II framework in 2006, they had to set out a new methodology without being able to calibrate it based on historical data. Fast forward almost 20 years, and banks have compiled vast databases to feed their models for Basel’s internal ratings-based (IRB) approach to calculating credit risk capital.
Little wonder, then, that credit risk managers are
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