Issues in the credit risk modeling of retail markets

We Survey the most recent BIS proposals for the credit risk measurement of retail credits in capital regulations. We also describe the recent trend away from relationship lending toward transactional lending in the small business loan arena. These trends create the opportunity to adopt more analytical, data-based approaches to credit risk measurement. We survey proprietary credit scoring models (such as Fair Isaac), as well as options-theoretic structural models (Such as KMV and Moody's RiskCalc), and reduced-form models (such as Credit Risk Plus). These models allow lenders and regulators to develop techniques that rely oil portfolio aggregation to measure retail credit risk exposure. (C) 2003 Elsevier B.V. All rights reserved.