The Analytical Cooperative

ws20001

Probability of Default (PD) & Loss Given Default (LGD) Benchmarking

The benchmarking of an existing methodology or process is frequently required for internal audit or internal validation purposes or to ascertain whether the in-house methodology warrants enhancement or replacement.

Benchmarking may be conducted against the methodology of a specified firm (e.g. one of the rating agencies) or against current best practice or both.

A comprehensive benchmarking exercise will typically focus not only how the results of application of the in-house methodology compares with the chosen benchmark but also investigate the construction and conceptual soundness of the methodology. However, more limited benchmarking exercises can also have specific roles to play in maintaining an overall robust risk management framework.