Conclusion

The rapid proliferation of credit risk models, including credit risk management
models, has resulted in sophisticated models which provide crucial information to
credit risk managers (see Table 10.1). In addition, many of these models have focused
attention on the inadequacy of current credit risk management practices. Firms
should continue to improve these models but keep in mind that models are only
one tool of credit risk management. While many banks have already successfully
implemented these models, we are a long way from having a ‘universal’ credit risk
management model that handles all the firm’s credit risky assets.
Author’s note
This paper is an extension of Richard K. Skora, ‘Modern credit risk modeling’, presented at
the meeting of the Global Association of Risk Professionals. 19 October 1998.
Note
1 Of course implementing and applying a model is a crucial step in realizing the benefits of
modeling. Indeed, there is a feedback effect, the practicalities of implemention and application
affect many decisions in the modeling process.