US credit risk modellers prepare for life after IRB

Stress tests and economic capital calculations may not carry the same weight as Basel ratio

If the rumours are to be believed, US regulators are preparing to end the use of internal models to calculate capital requirements for credit risk.

Some banks are already moving on. One senior risk modeller says chief risk officers are reluctant to sustain the levels of investment needed to maintain the internal ratings-based (IRB) approach for credit risk. “They are saying: ‘If regulators have decided that the models don’t work, then we don’t have to use them, and we shouldn’t use them.’”


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