Modelling low default IRB-portfolios by using internal credit risk models dates back to the implementation of Basel II in 2007. Since then, internal models have had to deal with fairly challenging times. As regulatory expectations continuously increase, costs are set to rise and the trend towards convergence between banks seems to be unstoppable. The ECB guide to internal models (October 2019) is offering a way out of this dilemma, by taking the opportunity to use rating models developed from pooled data into consideration. Relatively unknown throughout Europe, this so called Pool Approach has existed in Germany for over 15 years and has been performing impeccably for several of the largest German IRB banks.

The Pool Approach clearly provides results of exceptional modelling quality, accompanied by economies of scale leading to a cost efficient alternative for outsourcing modelling activities for sub portfolios as well as for core businesses. Conclusively, modelling teams at institutions are relieved from having to implement new time-consuming regulatory standards as previously mentioned, and thus, are able to focus on their core business. This webinar provides further insights on the idea of the Pool Approach and the mechanics of how this approach works for banks, supervisors, and service providers.

Key messages:

• Modelling low default IRB-portfolios is an expensive and time consuming business for IRB-banks
• The lack of data available for modelling purposes strikes as the most troubling issue
• The Pool Approach is taking advantage of the opportunity to use rating models developed from pooled data
• Exceptional modelling quality and economies of scale lead to an alternative for outsourcing modelling activities

About Our Experts
		Tobias Noll is the Sr. Relationship Manager at RSU Rating Services Unit. Since 2012, he has serviced and advised European banks regarding all RSU-run credit risk management tools such as internal rating systems, stress testing tools, IFRS9, early warning systems, and LGD-models.  Tobias studied business administration at the University of Applied Sciences in Aschaffenburg, Germany.  From 2006 to 2012 he worked for Société Générale and Barclays Capital in Frankfurt, Paris and London.

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