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We are always interested in speaking to members of the media on news and events affecting the world of corporate credit risk. We look forward to hearing from you.
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For Immediate Release
Moody’s KMV Introduces World’s Most Comprehensive Tools to Facilitate Banks’ Establishing Internal Ratings in Line with Basel II
SAN FRANCISCO, April 20, 2004 - Moody's KMV, the world’s leading provider of quantitative credit risk measurement and management tools to lenders, investors and corporations, today introduced the most comprehensive data collection, management and analysis product suite specifically designed to support banks in becoming compliant under the Internal Ratings Based (IRB) framework of the proposed Basel II Capital Accord.
The tools are targeted to credit analysts, chief credit officers, portfolio managers and managers of lending businesses who will use them to facilitate the development and use of internal ratings best practices as proposed by Basel II. The tools are of value to any bank seeking to improve its internal rating procedures for decision support and reporting purposes.
The suite comprises upgraded versions of two Moody’s KMV products --FinancialAnalyst and RiskAdvisor -- that have been mainstays in the banking industry for over 10 years, providing analysis and support for internal credit management and regulatory reporting. Version 5 of FinancialAnalyst and RiskAdvisor are specifically enhanced with Basel II IRB compliance in mind.
“These new versions of FinancialAnalyst and RiskAdvisor reflect our commitment to offering products and services that facilitate banks’ ability to comply with the Basel II Accord, and, at the same time, go beyond regulatory compliance to enhance profitability,” said Mary Jan Hedman, Director of Credit Decisioning Products at Moody’s KMV. “In our view, banks will be well served by solutions that utilize the additional data and analyses required by Basel II to improve their risk profile and loan portfolio performance.”
IRB compliance under the proposed Basel II accord requires a consistent rating of all borrowers in a portfolio using an internal risk rating system. RiskAdvisor Version 5 adds a number of features to help meet this requirement. Specifically, the proposed Foundation IRB approach demands that in addition to rating the individual borrower, an organization must also assess the riskiness of each loan or facility. The facility rating is expressed in terms of its Loss Given Default (LGD). The LGD, in combination with a borrower’s Probability of Default (PD), drives the Expected Loss (EL) of the loan which contributes not only to regulatory capital calculations but also plays a key role in advanced risk management applications such as Economic Capital and risk-based pricing. RiskAdvisor Version 5 offers a highly structured method to determine LGD based on the Foundation IRB approach, but is not limited to this specific methodology, enabling organizations to assess both their borrowers and their facilities via a comprehensive internal rating system.
In addition, capturing and managing data for multiple purposes is a difficult task that is central to establishing a compliant IRB strategy. The data archive feature in RiskAdvisor Version 5 provides an effective mechanism to save customer data and link it with critical rating and model information. Once captured, this data can provide a history of each borrower’s rating, source data for internal rating migration matrices and risk rating model development, and data for risk rating model validation and calibration exercises (to back-test internal rating model performance). Finally, by providing integration with Moody’s KMV public company expected default frequency’s (EDF, a well-accepted measurement of default probability) the enhanced software tools allow public companies to be risk rated (previous versions rated only privately held companies).
Among the financial institutions already using RiskAdvisor to establish an IRB approach in anticipation of Basel II is Lloyds TSB.
“For a sophisticated bank looking to go to at least Foundation IRB, Moody’s KMV RiskAdvisor offers an excellent platform,” said John Winter, Head of Risk Management of Lloyds TSB. “It goes a long way to hitting the Basel buttons, with its combination of financial and subjective data, forward-looking rating, use of peer data, standardization, controlled data environment and accurate view of customer quality. It is transparent, so you can see where the weak and strong points of the analysis are. It encapsulates our own view of the customer and everything we know about the relationship.”
About Moody’s KMV
Moody’s KMV, a wholly owned subsidiary of Moody's Corporation, is the world’s leading provider of quantitative credit risk analysis tools to lenders, investors, and corporations. Moody’s KMV's tools provide current default probabilities, recovery estimates, valuations and correlations, and are widely used to assess portfolio risk/return. Serving over 2,000 clients in 80 countries, including most of the world's 100 largest financial institutions, Moody’s KMV maintains the largest and cleanest database of corporate defaults in the world. In addition to its San Francisco headquarters, Moody’s KMV has offices around the world to serve its global customer base.
About Moody's Corporation
Moody's Corporation (NYSE: MCO) is the parent company of Moody's Investors Service, a leading provider of credit ratings, research and analysis covering debt instruments and securities in the global capital markets, and Moody's KMV, the leading provider of market-based quantitative services for banks and investors in credit-sensitive assets serving the world's largest financial institutions. The corporation, which reported revenue of $1.2 billion in 2003, employs approximately 2,300 people worldwide and maintains offices in 18 countries. Further information is available at www.moodys.com.
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