|
Archive@NYU >
Stern School of Business >
Salomon Center >
Financial Institutions >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27012
|
| Title: | Issues in the Credit Risk Modeling of Retail Markets |
| Authors: | Allen, Linda
DeLong, Gayle
Saunders, Anthony |
| Issue Date: | Feb-2003 |
| Series/Report no.: | S-FI-03-03 |
| Abstract: | Retail loan markets create special challenges for credit risk
assessment. Borrowers tend to be informationally opaque and borrow
relatively infrequently. Retail loans are illiquid and do not trade in
secondary markets. For these reasons, historical credit databases are
usually not available for retail loans. Moreover, even when data are
available, retail loan values are small in absolute terms and therefore
application of sophisticated modeling is usually not cost effective on
an individual loan-by-loan basis. These features of retail lending have
led to the development of techniques that rely on portfolio aggregation
in order to measure retail credit risk exposure. BIS proposals for the
Basel New Capital Accord differentiate portfolios of mortgage loans from
revolving credit loan portfolios from other retail loan portfolios in
assessing the bank’s minimum capital requirement. We survey the
most recent BIS proposals for the credit risk measurement of retail
credits in capital regulations. We also describe the recent trend away
from relationship lending toward transactional lending, even in the
small business loan arena traditionally characterized by small banks
extending relationship loans to small businesses. These trends create
the opportunity to adopt more analytical, data-based approaches to
credit risk measurement. We survey proprietary credit scoring models
(such as Fair, Isaac and SMEloan), as well as options-theoretic
structural models (such as KMV and Moody’s RiskCalc) and reduced
form models (such as Credit Risk Plus). |
| URI: | http://hdl.handle.net/2451/27012 |
| Appears in Collections: | Financial Institutions
|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.
|
