Technology Solutions for Credit Risk 2.0: Credit Risk Analytics, 2020; Market Update and CVA/CLO Solutions Vendor Landscape

This report builds on the themes discussed in Technology Solutions for Credit Risk 2.0, 2018, published in May 2018. In that report we identified an emerging credit risk environment – which we call Credit Risk 2.0 – in which the banking book and default risk analytics are experiencing a structural revolution. To complement our previous analysis of credit in the banking book, the report includes a more detailed exploration of the extensive and diverse trading book segment of the credit landscape, with deep dives into the rapidly growing credit valuation adjustment (CVA) and collateralized loan obligation (CLO) markets.

In 2019 we considered the structural changes ‘risk-aware accounting’ standards – such as International Financial Reporting Standard (IFRS) 9 and Current Expected Credit Losses (CECL) – have made to the vendor landscape, and assessed the new tools and capabilities that financial institutions need to comply effectively. In this report we analyze four key segments of the
credit landscape:

  • Credit for the banking book.
  • Credit for the trading book (xVA/credit valuation adjustment [CVA]/margin analytics).
  • Traded credit markets (credit-risk fixed-income products including corporate credit, collateralized debt obligations [CDOs], collateralized loan obligations [CLOs] and high-yield credit).
  • Credit for wealth management.

Highlighting the key trends across all segments of the credit landscape, we focus on analytics, considering the rapidly moving credit revolution, its regulatory drivers, and the evolving technology consequences arising from it. We also examine the relative rates of adoption for new and different technological paradigms in the four key segments of the credit risk landscape listed above.

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