The tool helps financial institutions validate IRB models for low- or no-default portfolios and comply with strict regulatory standards. Credit: TippaPatt/Shutterstock.

Credit risk data and analytics provider Credit Benchmark, in partnership with management consulting firm Oliver Wyman, has introduced IRB Nexus, an advanced solution aimed at enhancing the performance and calibration of internal ratings-based (IRB) models for banks.

This new tool is designed to assist financial institutions in validating their IRB models, specifically for portfolios with low or no defaults, and in meeting stringent regulatory standards.

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Banks worldwide are currently facing challenges in adapting their IRB models to comply with evolving global regulatory requirements. Many institutions find it difficult to assess risk accurately for low-default portfolios due to the lack of extensive historical data.

These portfolios often include funds such as alternative investment funds and non-bank financial institutions, which are closely monitored by regulators due to their potential systemic impact.

Inadequate model validation can lead to increased capital reserve demands, limiting banks’ lending capacity and affecting their competitive stance.

IRB Nexus addresses these issues by pooling over 10 million risk estimates annually from more than 40 top banks across the globe.

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By utilising the vast dataset from Credit Benchmark, the solution provides banks with benchmarking analytics to validate their IRB models.

The implementation of IRB Nexus is tailored to each client’s specific portfolio needs, ensuring seamless integration with existing IRB models.

Oliver Wyman partner Cem Dedeaga said: “IRB Nexus has the potential to be transformative for banks looking to significantly bolster their historical credit analytics data feeding their capital models.

“With Credit Benchmark’s aggregated data, we’re empowering risk officers with the insights needed to meet regulatory expectations while sustaining their lending potential.”

Credit Benchmark CEO Michael Crumpler said: “We’re proud to bring our extensive dataset to IRB Nexus. By equipping financial institutions with critical data on low-default exposures, this collaboration enhances risk modelling for portfolios that traditionally lack sufficient information, fostering transparency and reliability in commercial credit assessments.”

Established in 2015, Credit Benchmark compiles and anonymises contributed risk data from more than 40 international financial institutions, offering unique Credit Consensus Ratings and vital credit metrics.