Credit model evaluation

With the new Basel Capital Accord scheduled for implementation in 2005, banks are having to evaluate the credit scoring models that will enable them to meet the minimum standards for Basel’s internal ratings-based (IRB) approach. Selecting an appropriate model should not be based on skimming a limited statistical summary of a model’s accuracy. Rather, there should be a rigorous review process.

Bankers and corporate credit departments are increasingly employing credit scoring models to more efficiently and effectively estimate the credit quality of their borrowers and counterparties. In doing this, it is imperative that these institutions are capable of evaluating the models from which they are choosing, and recognise the importance of the ability to convey to regulators their understanding of the scoring models they employ.

With the new Basel Capital Accord scheduled for