In this report, we provide an in-depth analysis of a new statement on credit-risk management from the Joint Forum, the global body coordinating prudential standards for banks, insurers, and securities firms. The report recognizes that financial institutions have significantly improved credit risk management since 2008. It also takes great pains to emphasize that nothing it says need bind any regulator to do anything. Nonetheless, its recommendations for action will reinforce Basel’s efforts to move away from internal models, a change that could significantly increase large-bank capital requirements.
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