Bank of England supports counter-cyclical risk approach

Robert Peston, BBC, reported the speech by the UK Chancellor of the Exchequer at the Lloyds of London annual dinner: "…. Mr Osborne last night gave a nod that he might agree with Mr Cameron, by lauding a paper recently written by the influential Bank of England economist, Andrew Haldane, which argues that macro-prudential policy should be symmetrical. (I'll translate: The Bank of England should make it harder for banks to lend in unsustainable booms, and easier for them to lend when the economy is weak.)"

This addresses the counter-cyclical risk management approach we have advocated in our recent Insights paper, and which we addressed last month in our prize-winning paper at the Edinburgh scoring conference. In short, the use of FICO’s economic impact and grade migration models can help by calibrating the risk weights of banking assets to a counter-cyclical state. This would help achieve easier lending conditions for banks in weak economic conditions, and dampen lending in booms, while allowing the Basel III-mandated increases in capital to continue.