Retail Credit Risk Flashcards
define retail lending
exposure to an individual/small business, and guaranteed by such person
what are 4 examples of retail lending.
credit cards
residential mortgages
small business facilities
installment loans
what are two characteristics of retail lending
low individual exposure
managed collectively rather than individually
what is a credit risk score
a total number of points that predicts a borrower’s future repayment performance based on historical information
what is a scorecard
a mathematical algorithm used to generate a score for rank-order risk analysis
what are scorecards used for
- lending decisions
- mitigation of portfolio credit risk
what are two benefits of using a scorecard
easy to interpret
easy to monitor
what are the 6 stages in model development
- business objectives
- data preparation
- model development
- model approval
- model deployment
- monitoring
what are 3 aspects of business objectives
- key issues
- expectations for the model
- structure
define key issues
trends, challenges and concerns outlined by the business
define structure
project team members, data and timeline
what are the 5 C’s of data preparation
- Comprehensiveness
- Clean
- Consistent
- Current
- Caretaking
define comprehensiveness
ensuring the data captures the full scope and complexity of the underlying information
define clean
ensuring the accuracy of the data
define consistent
ensuring the uniformity of the data across different sources.
define current
ensuring the data is up to date
define caretaking
the ongoing management of the data to preserve its quality
what are 6 aspects of the data preparation in the model development lifecycle
the 5 C’s
exclusion criteria
timeframe
defining the target and explanatory variables
segmentation (# of models)
sampling
what are three sources of exclusion criteria
scope
data errors
operational
what two periods are involved in the timeframe of model creation
- observation period
- performance period
what are two aspects of the observation periods
- for explanatory variables
- should be representative of the current/future environment
what are two aspects of performance periods
- for the target variable
- should be long enough to have a sufficient number of defaults.