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Model Validation

  • Antonio Arfé
  • Paolo Gianturco
Part of the Palgrave Macmillan Studies in Banking and Financial Institutions book series (SBFI)

Abstract

The internal validation of rating systems is part of the general framework for rating system controls. According to both Italian and international regulatory requirements, validation activities should not be confined to empirical validation methods and tests, but should assess the overall functioning of the rating system along different dimensions that include method, the IT system and data quality, and processes and governance. Following the Basel Committee on Banking Supervision guidelines (2006, p.109), to comply with the normative framework, “banks must have a robust system in place to validate the accuracy and consistency of rating systems, processes, and the estimation of all relevant risk components. A bank must demonstrate to its supervisor that the internal validation process enables it to assess the performance of internal rating and risk estimation systems consistently and meaningfully.”

Keywords

Credit Risk Default Rate Brier Score Accuracy Ratio Basel Committee 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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References

  1. Basel Committee on Banking and Supervision (2006) International convergence of capital measurement and capital standards. Basel: Bank for International Settlements. June, p.109.Google Scholar
  2. Basel Committee on Banking and Supervision (2005) Working paper No. 14 — Studies on the validation of internal rating systems. Basel: Bank for International Settlements. May, p. 8.Google Scholar
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Copyright information

© Antonio Arfé and Paolo Gianturco 2013

Authors and Affiliations

  • Antonio Arfé
  • Paolo Gianturco

There are no affiliations available

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