Sound practices for backtesting counterparty credit risk models.
The Basel Committee on Banking Supervision has issued today a consultative document on Sound practices for backtesting counterparty credit risk models.
This supervisory guidance reinforces and explains some of the proposed changes to the Basel II framework included in the consultative document Strengthening the resilience of the banking sector, which was issued for comment in December 2009. Today's sound practices for backtesting paper provides additional information on supervisory expectations as well as recommendations to strengthen the backtesting of internal assessments of counterparty credit risk exposures.
Banks that have received supervisory permission to use internal model methods to calculate regulatory capital are required to validate their models on an ongoing basis. Backtesting is an integral element of the model validation process and the financial crisis has revealed that additional guidance in this area is required. The Committee believes that implementation of these sound practices will improve the backtesting of banks' models and, as a result, will enhance the resilience of individual banks and the financial system.
Comments on this consultative document should be submitted by 31 May 2010 by email (email@example.com) or by post (Secretariat of the Basel Committee on Banking Supervision, Bank for International Settlements, CH-4002 Basel, Switzerland).
Afinal version of this paper was releasedin December2010.
- Publication Date: April 2010
- Publication Type: Consultative
- Publication Status: Closed
- Publication Category: Risk Management
- Number of Pages: 17
- Keywords: Backtesting, Credit Risk Models, Model Validation, Counterparty Credit Risk, Credit Risk
For definitive information on regulatory matters always consult primary sources, especially where it concerns legally binding rules and regulations.
The above regulatory document abstract is quoted verbatim in this Open Risk Manual entry and provided free of charge for the convenience of all internet users. There is no explicit or implicit endorsement of this web service by the Bank of International Settlements. The copyright of the included material rests with the original authors (Links to the original texts are duly provided).