Credit Risk Summit: Citi unveils new loan credit model after $900m hedging error

US bank Citigroup has outlined a new credit risk modelling framework for its corporate loan portfolio in response to approximately $900 million lost in hedging errors in the fourth quarter of 2008.

The hedging loss arose from the use of the Financial Accounting Standards Board's FAS 159 rule on fair-value accounting, which forced the hedging instruments - single-name or index credit default swaps (CDS) - to be marked to market, while loans were valued on an accrual basis. The result was that

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Credit risk & modelling – Special report 2021

This Risk special report provides an insight on the challenges facing banks in measuring and mitigating credit risk in the current environment, and the strategies they are deploying to adapt to a more stringent regulatory approach.

The wild world of credit models

The Covid-19 pandemic has induced a kind of schizophrenia in loan-loss models. When the pandemic hit, banks overprovisioned for credit losses on the assumption that the economy would head south. But when government stimulus packages put wads of cash in…

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