Methodological Problems of Quantitative Credit Risk Modeling in the Czech Economy
by Alexis Derviz of Czech National Bank & Institute of Information Theory and Automation CAS, and
Abstract: This paper reviews the guidelines of if "The New Basle Capital Accord" (NBCA) and four internal models of credit risk assessment. We treat them from the point of view of their underlying concepts, the institutional pre-conditions of their implementation and data requirements. We specially focus on the possibilities, difficulties and consequences of their application to the banking sector in the Czech Republic. The description of each model focuses on the underlying assumptions, characteristics and theoretical approaches and a brief discussion of their main advantages and limitations. Comparisons among models aim at identifying their common features and points of departure. Last but not least, we try to assess the potential impact that the use of these models could have on credit allocation in the Czech economy, and, consequently, on the resulting environment for the conduct of monetary policy. A number of preliminary recommendations for the models' implementation in this country are formulated.