Featured Column
Credit Edge
By: Marco Folpmers
Provocative perspectives on risk measurement, regulation, expected losses (CECL/IFRS 9), quantitative risk, and modeling issues in the credit space.
Addressing Geopolitical Risk Through Stochastic Matrices
June 13, 2025
Financial risk managers are deploying advanced credit monitoring and measurement tools to account for rising geopolitical risk. What are these tools, ...
Read ArticleTrade Wars Should Motivate Banks to Rethink Credit Risk Management
May 16, 2025
The effects of the reciprocal tariffs unveiled by the Trump administration last month extend beyond inflation, interest rates and the supply chain. ...
Read ArticleIFRS 9 and Probability of Default: A Web of Confusion
April 11, 2025
The proper calculation of probability of default is crucial for European banks that need to comply with IRFS 9, the forward-looking financial ...
Read ArticleCredit Risk Measurement: Alternatives for PD-LGD-EAD on the Horizon?
February 7, 2025
Even after 40 years, the PD-LGD-EAD framework is still going strong – but models with more power and greater predictive accuracy are lurking. Though ...
Read ArticleSovereign Exposures: Zero Reason for Zero Risk Weight
January 10, 2025
Despite rising geopolitical threats and evidence that sovereign debt in Europe is now volatile, banks are still allowed by regulators to treat ...
Read ArticleStatistical Hypothesis Skepticism: Implications for Credit Risk
November 27, 2024
Despite recent criticism of null hypothesis testing in the scientific community, credit risk modelers continue to use statistical measurement tools, ...
Read ArticleThe ECB’s Fresh Approach for Improving Culture and Risk Governance at European Banks
October 11, 2024
Traditionally, when providing guidance on risks related to culture and governance, regulators have emphasized positive attributes that banks should ...
Read ArticleThe ECB’s Paper on Novel Risks and IFRS 9 Overlays: A Missed Opportunity
September 13, 2024
Forecasting loan loss provisions for emerging risks under the IFRS 9 accounting standard is an important and extremely challenging task. The European ...
Read ArticleCredit Modeling: How to Improve Discriminatory Power
August 2, 2024
Predicting defaults is a difficult challenge for risk managers, partly because credit risk models often lack adequate discriminatory power. Some ...
Read ArticleThe Evolving Role of G-SIBs: Is Big Beautiful Again?
June 7, 2024
There is a growing appreciation for global systemically important banks. But G-SIBs still face tough risk management standards and high capital ...
Read ArticleNavigating the New Regulatory Landscape: How European Banks and Risk Managers Must Adapt
May 17, 2024
Credit risk managers are going to have to adjust to new standards that are on the horizon for models and for artificial intelligence. What specific ...
Read ArticleThe CRR3 Output Floor: A Strange Backstop for Credit Risk Measurement
March 22, 2024
Basel 3.1 has a so-called output floor that places strict limits on the amount of benefits a bank can gain from using internal models to meet ...
Read ArticleEU Banks Enjoy Success, But Must Stay Vigilant About Emerging Risks
February 9, 2024
European banks have done a fine job of building capital while keeping their risk exposure in check in volatile times. How have they achieved this, ...
Read ArticleThe Risk-Reward of Buy Now, Pay Later
January 12, 2024
BNPL platforms have grown exponentially over the past five years, and may seem like a savior for cash-strapped consumers. However, proper financial ...
Read ArticleHow Generative AI Can Solve a Traditional Risk Modeling Problem
December 8, 2023
Financial risk modelers are now using generative AI to work more efficiently. Though the technology is still not yet fully developed, modelers can ...
Read ArticleThe 2023 Banking Turmoil: A Middle-of-the-Road Crisis
November 17, 2023
Risk managers can certainly learn valuable lessons from this year’s regional banking fiascoes in the U.S. – but do these meltdowns measure up with ...
Read ArticleHow Regulatory Backstop Measures Can Lead to Worse Risk Management
October 6, 2023
Whenever supervisors do not feel sure about risk measurement, they call for conservatism. But the probability of default backstop the ECB has added ...
Read ArticleHow Generative AI Will Disrupt Credit Risk Modeling
September 1, 2023
Improved coding of PD, LGD and EAD models is one of the potential benefits of this innovative technology. How does this work, and what else can ...
Read ArticleDoes Visualization Improve the Explainability of ML Models?
July 28, 2023
Machine-learning models are being used by more and more financial institutions to improve the accuracy of credit risk forecasts. Sophisticated ...
Read ArticleFoundation IRB: An Inferior Option for Credit Risk Modeling?
June 16, 2023
For certain asset classes, Basel III prohibits the use of the advanced IRB approach for credit risk measurement, favoring instead a foundation ...
Read ArticleAgile Approaches for Credit Risk Modeling: Curse or Blessing?
May 19, 2023
Today, agile model development methodologies are becoming increasingly popular. What are the advantages and pitfalls of these approaches when ...
Read ArticleCredit Risk Measurement: Basel III’s External Ratings Dilemma
April 14, 2023
The rollout of Basel III in both Europe and the U.S. is on the horizon, but flaws remain in its requirements for calculating risk-weighted assets. ...
Read ArticleWhen to Change IFRS 9 Scenario Weights for ECL: A Simple Rule
March 10, 2023
Financial institutions in Europe now employ a range of scenario-weighting approaches to estimate IFRS-9-compliant expected credit losses, with little ...
Read ArticleUnder the Hood: Evaluating the Basel Committee’s Self-Analysis of Basel III
January 27, 2023
A new BCBS report states that Basel III reforms have yielded stronger, more resilient banks without any negative side effects. But the analysis ...
Read ArticleTwo Regulators, Two Views: BCBS and ECB Offer Contrasting Perspectives on Bank Credit Risk
November 11, 2022
How did European banks respond to the risk management worries of the COVID-19 pandemic, and should we be concerned about their approach to current ...
Read ArticleThe Expected Credit Losses Dilemma: Weighing IFRS 9’s “SICR”
October 21, 2022
Under IFRS 9, European banks today face a steep increase in their loan-loss provisions if it is determined at the time of financial reporting that ...
Read ArticleModel Validation: Dissecting the Boundaries of a Rules-Based World
September 9, 2022
The European Banking Authority is seeking feedback from regional supervisors and banks about a handbook it has created for validation of IRB models ...
Read ArticleEconomic Capital: The Power of Diversification
August 12, 2022
As we speed toward the January 2023 deadline for Basel III implementation, the calculation of economic capital has become more important than ever. ...
Read ArticleThe Problems with Ritualistic Risk Management
July 8, 2022
Despite all the progress that banks have made in identifying, assessing and mitigating risks over the past 20 years, the shift away from the risk ...
Read ArticleNew Drivers for Credit Risk: Increasing Interest Rates and Rising Geopolitical Risk
April 8, 2022
Central banks are tightening monetary policies, and banks now have to consider not only the impact of rising interest rates but also of the ...
Read ArticleThe Rise of Machine Learning in IRB Models: New EBA Outlook Could Open Door
December 10, 2021
Though obstacles remain, European banks may now have a window to develop ML-driven methodologies for credit risk assessment. Measures are still ...
Read ArticleCredit-Risk Models Based on Machine Learning: A 'Middle-of-the-Road' Solution
September 10, 2021
Even though machine-learning technology has been around for some time now, financial institutions' appetite for complex, ML-driven credit risk models ...
Read ArticleThe New Basel Framework for Climate Risk Management: Pros and Cons
May 14, 2021
Should climate-change risk be intermixed with the existing risk taxonomy of a financial institution or should it be managed separately? The latest ...
Read ArticleTempered Expectations: The Hope and Reality of AI in Risk Management
February 12, 2021
Models driven by artificial intelligence have not yet lived up to the hype, particularly with respect to probability of default estimation. But ...
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