For
Immediate Release Thursday, June 5, 2003
For More Information, Please Contact:
ISDA, RMA, BBA to Present Results of Internal Risk-Based Validation Study
New York, NY (June 5, 2003) ----The International Swaps and
Derivatives Association (ISDA), the RMA (The Risk Management Association), and
the British Bankers Association (BBA) will discuss the results of their survey
on the validation of banks' internal credit ratings, a key element underlying
the Internal Ratings-Based (IRB) approach in the New Basel Capital Accord. The
discussion will take place at two one-day advanced IRB forums at the offices of
ISDA in
The Survey examined validation processes for specific asset classes covered in the revised Accord, including corporate exposures, specialized lending, bank exposures, retail product portfolios, and sovereigns. Survey participants completed an extensive Web-based questionnaire and many were selected for follow-up interviews, which took place throughout January and February. PricewaterhouseCoopers served as consultants to the project.
The Associations decided to undertake the Survey after the Basel Committee on Banking Supervision, in its second consultative package, set out the minimum requirements financial institutions must meet in order to use the IRB approach. One of the requirements is for banks to demonstrate their capabilities to validate their estimates of default probabilities and the techniques used to assign internal ratings. Specific standards for validation, however, are left to the discretion of national regulators. The Survey is intended to provide guidance to regulators and the industry in this area for the implementation of the New Accord.
The Survey, which had the active support of major financial institutions and had been encouraged by leading financial regulators, does not recommend the adoption of specific methodologies or standards. Instead, the information gained through this research is intended to provide financial institutions and regulators with a better understanding of the wide range of validation techniques in use and how to implement them.
“The study is
the first global survey on industry practice in validation of internal ratings
systems,” said
BBA Chief Executive Ian Mullen said, "The study has important messages for the industry and its supervisors, not the least of which is that no single best practice exists and that judgement is central to current practice."
RMA President and CEO Maurice H. Hartigan II said, "The study results will benefit financial institutions by facilitating the sharing of knowledge about current validation techniques and provide a benchmark to global industry practice. The study results also will benefit national regulators by providing an overview of the diversity of techniques among institutions in various countries. Further, the information should help avoid the adoption of inflexible or overly prescriptive standards that could lead to reduced incentives for continued innovation and improvement of existing methods and models."
ISDA is the global trade association representing leading participants in the privately negotiated derivatives industry. ISDA was chartered in 1985, and today has more than 600 member institutions from 46 countries on six continents. These members include most of the world's major institutions that deal in privately negotiated derivatives, as well as many of the businesses, governmental entities and other end users that rely on over-the-counter derivatives to manage efficiently the financial market risks inherent in their core economic activities. Information about ISDA and its activities is available on the Association's web site: www.isda.org.
RMA (The Risk Management Association) is a member-driven professional association whose sole purpose is to advance the use of sound risk principles in the financial services industry.
Founded in 1914, RMA promotes an enterprise-wide approach to risk management that focuses on credit risk, market risk, and operational risk.
Headquartered in
For more information, please contact: Pam Martin, Director: 215-446-4092,
Kathie Beans, PR Manager: 215-446-4095
The British Bankers' Association (BBA)
is the leading trade association in the banking and financial services industry
representing banks and other financial services firms operating in the
For more information, please contact: Simon Wills, Director: 44 (0)20 7216 8841
Brian Capon, Press Office: 44 (0)20 7216 8810
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125,000 people in 142 countries, we build relationships by providing services based on quality and integrity.
PricewaterhouseCoopers refers to the network of member firms of
PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
For more information, please contact: Andrew Gray, Partner: 44 (0) 20 7583 5000