Who's afraid of the IRB?

Only a few UK mortgage banks have so far implemented internal ratings-based models in preparation for Basel II. What effect has this had on their business, and what are the implications of increased sensitivity in risk modelling for the UK mortgages market? By Duncan Wood

The benefits of Basel II are a little cloudy for most institutions. If banks are prepared to jump through all the hoops necessary to use the internal ratings-based (IRB) approaches, they are rewarded with more risk-sensitive capital requirements, stronger ties between risk and the business lines, and the respect of their peers. For mortgage lenders, the immediate benefits are more tangible. They