Credit Risk Analytics and Regulatory Compliance

Credit Risk Analytics and Regulatory Compliance

Share

Post the Financial Crisis of 2008, there has been an increase in the regulatory vigilance of the capital adequacy of commercial banks across the globe. Banks need to be compliant with different regulatory capital requirements, so that they can continue their operations under situations of stress. A majority of analytical work in Indian BFSI domain is in to providing analytical support to US based multinational NBFC’s. We would like to throw some light on the opportunities and scope of credit risk analytics in the US banking and financial services industry. The Federal Reserve requires the banks to be compliant with three main regulatory requirements: BASEL- II, Dodd Frank Act Stress Testing (DFAST) and Comprehensive Capital Analysis and Review (CCAR).

BASEL-II norms aim to create an international standard for banking regulators to control how much of capital banks need to put aside to guard itself against the three major risks: Credit risks, Operational risks and market risks. DFAST and CCAR are regulatory stress testing guidelines. Stress testing is a technique prescribed by the Federal Reserve to assess the capital sufficiency of banks to absorb losses arising from stressful economic and financial market conditions.

The knowledge of these regulatory requirements is indispensable for being hired in the domain of Credit Risk Analytics. Each of these regulatory documents suggests extensive use of statistical and econometric techniques for making banks adequately capitalised. Clients are eager to hire professionals with outstanding skills in predictive model development techniques, relevant software knowledge and good understanding of the regulatory requirements.
Over the successive blogs, we will try and develop the co-integrated nature of statistical and econometric techniques and the regulatory guidelines. This, as we believe will help aspirants in preparing for their venture into the domain of analytics.

admin