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FRM Part II · FRM Exam Part II · Credit Scoring and Retail Credit Risk Management

A card issuer notices that customers who recently had their credit lines increased through an automated program show a higher subsequent default rate than a control group with no increase, despite similar scores before the increase. Which risk management response is most appropriate?

The issuer should refine the line-increase criteria using behavioral scores and keep testing against control groups. Control groups reveal the strategy's causal effect on defaults, so removing them or expanding the program blindly would increase risk without evidence.

  1. ARefine the line-increase strategy using behavioral scores and test it against control groups before wider rolloutCorrect
  2. BApply line increases to all customers to improve utilization
  3. CStop using behavioral scores in account management
  4. DEliminate the control group to reduce cost

Explanation

Champion-challenger style testing with control groups isolates the effect of the strategy. Evidence of adverse results calls for refining eligibility with behavioral data, not expanding or dropping controls and models.

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