Announcements
Drinks

TUESDAY,
07/12/2021 - Scope SE & Co. KGaA
Download PDF
The Wide Angle – Using machine learning to calculate regulatory capital: when, not if
A recent EBA discussion paper on the use of machine learning (ML) to calculate regulatory capital requirements is one of the first attempts by a major supervisor to reach this new frontier, a major step for both banks and regulators.
Adopting ML for the Internal Capital Adequacy Assessment Process would change the way the industry and the markets assess bank credit risk. Market participants would find it difficult to discount outcomes of a capital allocation process largely driven by ML, especially when the accuracy and transparency of ML models become more evident. The complexity of ML and potential difficulties in interpreting and explaining outputs are challenges, but the benefit of that complexity is better predictive power.