Historically credit risk portfolios have been managed within separate lines of business, creating silos of activity separate from market and operational risk. Credit risk models supported the management of loans and workflow - from origination and scoring, to risk grading, price optimisation and underwriting. Loss reserves were primarily monitored and managed using internal ratings and factors linked to loan covenants, or otherwise managed through hedging and securitisation.

This siloed approach, however, can lead to consequences - as we learned during the financial crisis of 2008. In a 2010 report published by the Chartered Institute of Management Accountants (CIMA), it was noted that compartmentalisation of credit, market and operational risk within silos "negated the benefits of a structure designed to cascade risk management down through different divisions." This created a blind spot for risks developing across the firm, and it encouraged credit portfolio managers to increase their risk appetite...