Intro

A big thanks to Andrew for starting Ozrisk and being the mainstay – I hope you will still be in the wings and willing to share your top-level views of risk issues.

I have volunteered to contribute, although not to follow in Andrew’s footsteps: for my banking experience is not deep. Instead, the turf I intend to plow is in a specific corner of the park (?metaphors), drawing on my technical input to a ground-up Basel II AIRB project across the years 2003-2007. As the Bio warns, this may get pedantic and detail oriented in places.

<Insert anecdote> Early in the project, in a meeting about scorecard cut-offs, the GM happened to ask what our ‘bad rate’ for Home Loans was, and I was temporarily flummoxed as one could imagine a dozen different contexts within which the question could be answered. However, that was not the forum to start getting technical about variations of the default definition, materialities, modelling marts versus backtesting, monitoring, re-aging, exclusions, cohorts and time windows, closed goods in versus out, marginal versus average, and all those other details that the actual data hackers and model builders have to wade through before delivering the superficially simple answers. <End anecdote>

Since that early flummox, it has become clear that many “default analytics” issues are subtle and can lead to imperfect communication, and lack of reconciliation, amongst different departments and committees even within the same bank, let alone with regulators and other external parties. So, I started collating mostly mental notes on topics that deserved a clearer exposition. These notes could fall under the general heading of “Default Analytics”, with sub-headings as below:

• Default definition
• Default metrics
• Default prediction (building models)
• Default monitoring (actual performance of accepts)

The imagined audience are credit risk analysts, and people who use their outputs. Many silent readers of Ozrisk are expert in this space, and I hope your role will be to correct or to embellish the material as you see fit.

My plan, then, is to proceed with some expository posts along the above lines (the first couple of posts may be waffly and administrative). No encouragement is required, as I am likely to carry on for a while (unless Andrew asks me to stop!). Time will tell which threads strike useful chords, and with your contributions we can hopefully create a helpful resource for this corner of the risk industry. Maybe this is the forum to get technical about those items