Private Individuals: Credit Risk Modeling
In the old good days, the main innovation in banking was air conditioning. Since then, the financial industry has experienced many changes. Of those changes, statistical credit risk modeling is one of the most influential. Retail banking strategy has evolved toward a profit maximizing, industrial processing model where efficiency, speed, and control are key success factors. In this context, senior management has been very receptive to the development of a statistical decision framework.1 Increasingly complex laws and regulations have also required the need for a formalized risk measurement and control framework. In addition, the diversification by both countries and products has added further intricacies. In this chapter, we assess the pros and cons of credit risk modeling for operational processes, policy definitions, business goal setting, and organizational change. We leave the statistical and analytical aspects of the modeling to the well established technical literature.
KeywordsCredit Risk Senior Management International Financial Reporting Standard Private Individual Consumer Credit
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