financial risk fitness gmbh

Landsberger Straße 98 - D-80339 Munich
Phone +49 89 46139112 - www.financial-risk-fitness.com

Internal Credit Rating Models & Validation

This two day course provides a look at recent developments and current thinking on best practices in the design, use and validation of credit risk internal ratings systems.  It will cover lessons learned from the credit crisis and the limitations of credit risk scoring models in market dislocation situations.

The course aims to equip participants not just with the theory but also the practice, including how to build these tools and how to use them. In addition, it will explicitly cover all the management issues—for example, improvements in performance that go beyond business requirements—that need to be addressed.

This course leverages on the post financial crisis “best practices” employed by leading international banks in developing, validating and back testing sturdy internal rating models. It specifically addresses means of dealing with low default portfolios and on mapping to rating agencies (“through the cycle”) rating PDs while complying with the Basel III requirements. The course will place a strong emphasis on the participation of delegates in group discussions and group exercises.

Who should attend?

  • Credit Models Developers
  • Credit Models Validators
  • Internal Auditors
  • Financial Industry Regulators
  • Credit Risk Managers
  • Customer Relationship Managers / Loan Officers
Day One
  • Intro & Seminar Utility
  • Discussion with Participants on the Key Challenges in Rating Model Development
  • Draw Seminar Objectives
  • Relevance of the Global financial Crisis
  • Credit Rating Systems in the Financial Industry Today
    • Purpose of a Rating Model aligned with Institutional Strategy
      • Customer Segmentation challenges
    • Case Study drawn from a large Canadian Bank
      • Obligor Ratings
      • Facility Ratings
    • A Synoptical Review of modern Rating Models
      • Heuristic (Expert) Models
        • Classic Rating Questionnaires
        • Qualitative Systems
        • Expert Systems
        • Fuzzy logic Systems
      • Statistical Models
        • Discriminant Analysis
        • Regression/ Econometric Analysis
        • Artificial Neural Nets
      • Causal Models
        • Option Pricing (Moody´s KMV/ Merton)
        • Cash flow Simulation Models
      • Hybrid Models – Illustrations and Case Studies
  • Requirements for Acceptable Rating Models
  • Case Study: SME
Day Two
  • Review
  • Six Fundamental Challenges
    • Managing Data
    • Optimizing the Scoring Function
    • Model Calibration
    • Dealing with Transition Probability Matrices
    • Dealing with low Default portfolios
    • EAD & LGD Modelling – Basel II Acceptability
  • Management Challenges
    • Analytical pitfalls
    • Organizational Aspects
    • Regulatory Concerns
    • Macroeconomic concerns
    • IT/ Infrastructure Issues
  • Validation
    • Introduction and Definition of Terms
    • Management Challenges
    • Difficulties of Model Quality Assessment
    • Testing the robustness of Internal Rating Models
    • Factor Selection and Model Design
    • Stress Testing
    • Basel II Compliancy for IRB
  • Group Case Studies (Corporates, FIs)
  • Concluding Discussion