European credit model outputs vary wildly
The ratio of risk-weighted assets to corporate credit exposures, as calculated by banks’ internal models, differs enormously from firm to firm, Risk Quantum analysis shows.
A survey of 16 European banks reveals that the risk density of corporate loan books – calculated as RWAs divided by exposures-at-default (EAD) – as determined by each firm’s advanced internal ratings-based approach (A-IRB) models, ranged from 33% to 55% at end-2017.
Risk-weighted assets are used to set banks’ minimum
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