Regulators issue internal-ratings validation studies
BASEL, Switzerland - Global banking regulators issued in February a collection of studies by their experts on the validation of advanced approaches to measuring credit risk under the Basel II upgrade of bank safety rules.
The Basel Committee on Banking Supervision, the architect of Basel II, published a collection of studies on the validation of internal rating systems produced by its validation group, a subgroup of the Committee's Research Task Force.
The Committee said the development of ways of validating external and internal rating based (IRB) systems is clearly important because of the requirement under Basel II for banks and their supervisors to assess the soundness of internal credit risk management and measurement systems. More specifically there's a need to develop tools for validating the systems used to generate the parameters, such as probability of default and loss given default, which are inputs to the IRB approach.
The work of the validation group collected in the publication addresses a number of topics on rating system validation, with particular focus on empirical validation methods.
Studies on the Validation of Internal Rating Systems - The Basel Committee (www.bis.org).
