Data: The Forgotten Pillar of Basel II Compliance

Data: The Forgotten Pillar of Basel II Compliance in DMReview talks a little about the Basel II Capital Accord , which Banks around the world are expected to comply with. The accord is fairly complicated, but essentially has 3 "pillars", monitoring Credit Risk, Market Risk, and Operational Risk and reporting risk exposure in order to hopefully avoid large financial groups failing and disrupting global finances. The Credit Risk Pillar (Pillar 1) involves running analytics to determine probability of default, loss given default, exposure at default, and effective maturity for different asset classes and borrower grades.

From paragraph 407 (p. 74), "the bank must demonstrate that it has been using a rating system that was broadly in line with minimum requirements articulated in this document for at least the three years prior to qualification," and this is where the challenge is occurring for many Banks, as they must find this historical data and make sense of it. These skills combined with understaning the accord are currently in very hgh demand.