Sponsor's article > Credit risk catches up

When Basel II was first proposed in 1999, credit risk models lagged way behind market risk models. But that's changed, which means we need less prescriptive rules for determining credit risk capital.

To calculate minimum regulatory capital for credit risk, many banks have long argued that they should be allowed to use their own internal models, as they already do for market risk and, prospectively, will be able to do for operational risk. The market risk extension of Basel I has been very successful and allows regulators to insist on continuous improvement in banks’ market risk measurement