I was asked a question today that I thought would be interesting for the general readership – to see what approaches were being used. To quote the question:

My … question for you is regarding retail pooling……as you know, when we implemented in <deleted>, each exposure was individually assessed and the pooling approach was not adopted.
Given that SMEs have the ability to fluctuate between Corporate and Retail classifications, how does that work from a model perspective for banks that have adopted the pooling approach for retail? For example, a business is assessed using a non-retail application scorecard as it meets corporate criteria and a PD is calculated. If that business then ceases to meet the corporate criteria would it then need to be allocated to a Retail pool? Then what happens if it pops back into the Corporate bucket?
I can only assume that this is not dynamic managed and that there would need to be some manual reclassication / reassessment of the exposure.

I know what my response would be, but I would be interested to see what approaches are being adopted outside my own little wo

rld. Comments?