Banks not ready for advanced IRB, says Trema speaker

Professor Dimitris Chorafas, an international management consultant, said banks are still lacking in sophistication. He also said some banks are not properly taking account of economic capital allocation. He said economic capital allocation to various units still uses ad hoc methodology, risk measures and performance metrics.

“The complexity could overwhelm many medium-sized banks,” he said.

Chorafas also criticised banks for spending lavishly on capital allocation databases. “Citi[group] spent $30 million making the most eloquent database. The result is that no-one used it because it had 25% errors.”

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