“After six years of pressured, intense work on Basel II, they don’t want to be thrown back into a heavy schedule just yet and I think the evolution over the next few years will be refining Basel II,” he says.
All the same, the world does not stand still and Mr Crockett believes the next quantum leap in risk management will be moving on from internal ratings to a model-based approach. “Models could take account of the relationships not only between different types of credit risk but also between credit, market and maybe even operational risk,” he says.
This would allow supervisors to get out of the business of prescribing specific risk weights that the banks should use for different types of credit. Instead, their job would be to verify the robustness of the model and make sure that the banks put aside sufficient capital for the risks that the model has identified.
