Regulatory Implications of Credit Risk Modelling
by Patricia Jackson of the Bank of England, and
Abstract: This introduction places in context the papers on credit risk modelling contained in the special issue. We explain why credit risk modelling has become such a focus of interest for practitioners and financial supervisors. Even though, as we explain, the current modelling technologies have significant weaknesses, they offer the possibility of major changes in the ways banks are managed and regulated. The main impediment to greater use of these models, especially by regulators, is the difficulty involved in backtesting the risk measures they produce. We suggest some thoughts on how back-testing and other types of model assessment might be performed.
Keywords: Credit risk modeling, Bank regulation, Capital requirements.
Published in: Journal of Banking & Finance, Vol. 24, No. 1-2, (January 2000), pp. 1-14.