Using Credit Risk Models for Regulatory Capital: Issues and Options

18 Pages Posted: 10 Nov 2005

See all articles by Beverly Hirtle

Beverly Hirtle

Federal Reserve Bank of New York - Banking Studies Department

Mark Levonian

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Marc R. Saidenberg

affiliation not provided to SSRN

Stefan Walter

Federal Reserve Banks - Federal Reserve Bank of New York

David M. Wright

Board of Governors of the Federal Reserve System

Abstract

The authors describe the issues and options that would be associated with the development of regulatory minimum capital standards for credit risk based on banks' internal risk measurement models. Their goal is to provide a sense of the features that an internal-models (IM) approach to regulatory capital would likely incorporate, and to stimulate discussion among financial institutions, supervisors, and other interested parties about the many practical and conceptual issues involved in structuring a workable IM regulatory capital regime for credit risk. The authors focus on three main areas: prudential standards defining the risk estimate to be used in the capital requirements, model standards describing the essential components of a comprehensive credit risk model, and validation techniques that could be used by supervisors and banks to assess model accuracy. The discussion highlights a range of alternatives for each of these areas.

Keywords: credit risk models, risk-based capital, bank capital, capital requirements, capital regulation, credit risk

JEL Classification: G21, G28

Suggested Citation

Hirtle, Beverly and Levonian, Mark and Saidenberg, Marc R. and Walter, Stefan and Wright, David M., Using Credit Risk Models for Regulatory Capital: Issues and Options. Economic Policy Review, Vol. 7, No. 1, March 2001. Available at SSRN: https://ssrn.com/abstract=844224

Beverly Hirtle (Contact Author)

Federal Reserve Bank of New York - Banking Studies Department ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-7544 (Phone)
212-720-8363 (Fax)

Mark Levonian

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States
202-874-5230 (Phone)

Marc R. Saidenberg

affiliation not provided to SSRN

No Address Available

Stefan Walter

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

David M. Wright

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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