The capital calculation question

Retail portfolio risk


The new Basel II capital charges were devised after detailed study of loan portfolio risks by financial engineering groups in the US Federal Reserve Board and the Bank of England. As special adviser to the Bank of England, I was myself closely involved in the latter of these two groups.

The analysis was carefully done and drew on what was known at the time about credit risk modelling. But knowledge moves on, and in the case of credit risk the progress in understanding has been extremely rapi