Credit risk capital models hanging by a thread in the US

Industry insiders expect Fed to drop IRB and IMM when adopting Basel III, but market risk models may survive

Risk modellers at the largest US banks may soon have more time on their hands. US prudential regulators are said to be preparing to jettison advanced approaches for modelling credit and counterparty credit risk when they adopt the final elements of the Basel III bank capital framework.

Six sources with knowledge of US Federal Reserve discussions say they expect the internal ratings-based (IRB) approach for credit risk, and internal models method (IMM) for counterparty credit risk will be axed.