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Basel's new credit model

The Basel Committee’s new consultative paper allows banks to internally rate individual credits. But at the portfolio level, Basel wants to apply a single model framework, based in part on a technical paper published in Risk magazine in October 1998.

It’s official: the Basel Committee on Banking Supervision has embraced credit risk modelling. Only a year ago, the regulators were voicing deep suspicions of models, favouring instead a ‘risk bucketing’ approach that merely refined the notoriously crude risk weights of the 1988 Capital Accord.

Risk bucketing is still there, in the form of the Standard Approach, which stipulates fixed risk

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