Credit Suisse develops model to help banks ease credit risks
Credit Suisse First Boston has introduced a mathematical model it believes can supplement banks' systems and help them to more accurately assess credit risks.
The model - 'CreditRisk+' - was launched by the group's 80 per cent-owned British-based unit, Credit Suisse Financial Products (CSFP), and is to be applied to a portfolio of assets instead of a particular individual borrower.
CSFP's head of credit risk management, Andrew Cross, said the model worked on analytical techniques similar to those used in assessing market risks, which were widely applied in the insurance industry.
He said the model, supplementing banks' credit risk-management systems, could help them work out methods to calculate more accurately the amount of capital and provisions necessary to cover the credit risks of their loan portfolios.
He said it captured the essential characteristics of events leading to credit defaults and incorporated the volatility of default rates rather than making assumptions about the timing or causes of default events.
The model, Mr Cross said, was applicable to all types of risks, from commercial and sovereign to retail borrowers, and was capable of producing results without involving complicated mathematical and simulative calculations.
It would enable risk managers to monitor the credit risks of their loan portfolio very rapidly upon outbreak of events leading to loan defaults, he said, such as downgrading moves from credit-rating agencies.
CreditRisk+ has been used in CSFP's derivatives business since it was introduced in December 1996 and has been available to CSFP's clients since late last year.
Mr Cross said the model was designed to supplement banks' systems of credit risk management.