Basel Committee releases guidance on backtesting counterparty credit risk models


December 10, 2010: The Basel Committee on Banking Supervision issued today Sound practices for backtesting counterparty credit risk models. This guidance sets out supervisory expectations as well as recommendations to strengthen the backtesting of internal assessments of counterparty credit risk exposures.



Banks that have received supervisory permission to use internal model methods to calculate regulatory capital are required to validate their models on an ongoing basis. Backtesting is an integral element of the model validation process and the financial crisis has revealed that additional guidance in this area is required.

The Committee believes that implementation of these sound practices will improve the backtesting of banks’ models and, as a result, will enhance the resilience of individual banks and the financial system.

A consultative version of this paper was released for public comment in April 2010.



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