On 24th of March 2016, the Basel committee proposed to adopt a “standardised” framework for low default portfolio and more stringent requirements in terms of underlying data for the others(more years and only internal default experience)
Around 75% of banks risk weighed assets are related to Credit Risk in the banking book (Regulatory consistency assessment programme (RCAP), analysis of risk weighted assets in the banking book”, April 2016, Basel Committee
Currently, several sophisticated Banks rely on “centralized” credit risk modelling and data framework which is then adjusted to serve specific needs. Removing internal model for capital requirements would affect their economies of scale and scope in this area
Counterproposal from banks “Constrained-internal Rating based approach, split default assessment process into 1) rank order ordering 2) calibration of PDs
The Prudential Regulatory Authority (PRA) in the UK defines a minimum number of default of 20 for internal Rating Based approach: “Internal ratings based approaches”, SS11/13, November (updated June 2017 at time of writing)
After almost 50 years the simple and parsimonious statistical credit risk model from Altman is still widely used by market participant for trading, loan origination and risk management purposes in many region of the world.
Looking at default data from S&P Global, market Intelligence and at the ample availability in the market statements for financial and non-financial firms it appears there is enough data to provide company specific estimates of probabilities of defaults over different time horizons