The importance of credit–risk management has never been more important with the current high default rates and bankruptcies; but, there was heightened interest even before the current scenario. Indeed, in 1999, at the end of the benign credit cycle, banks, regulators, and financial market practitioners were spending considerable time on this subject due to:
(1) Increased emphasis on sophisticated risk management techniques in a changing regulatory environment – mainly revisions to the so–called ‘Basel Accord’
(2) Refinements in credit–scoring techniques
(3) Establishment of relatively large, relevant data bases on defaults, recoveries and credit migrations
(4) Treatment of bank loans as securities
(5) Development of ‘offensive’ credit–risk mitigation techniques such as securitizations, credit derivatives and credit insurance products
(6) Portfolio management techniques for credit assets.
(J.E.L.: G14, G21, G33).