For immediate release

The Federal Reserve Board today issued a final report prepared by the System Task Force on Internal Credit Risk Models. The Task Force was created to assess potential uses of internal credit risk models within the supervisory and regulatory processes. The report describes current uses of internal models by major U.S. banking organizations, and outlines possible uses of the models for assessing bank capital adequacy. The report concludes that significant difficulties exist with respect to model construction, data availability, and model validation procedures, so that near-term uses of the models within the regulatory process are limited. However, the report also concludes that models may, over the somewhat longer term, become useful in at least the following two roles: The development of specific and practical examination guidance for assessing the capital adequacy of large, complex banking organizations, and The setting of regulatory capital requirements against selected instruments that have largely evolved subsequent to adoption of the Basle Accord on risk- based capital, such as credit enhancements supporting securitization programs. A copy of the Executive Summary of the report is attached. The full report is available upon request from Publications Services, Mail Stop 127, Board of Governors of the Federal Reserve System, Washington, D.C. 20551. It is also available on the Board's internet site under "regulation and supervision" Report on Credit Risk Models (145 KB PDF) Executive Summary (49 KB PDF)

1998 Banking and consumer regulatory policy