Much press in the past decade has been devoted to the conceptreferred to as risk- based loan pricing, or RBL.

Most financial institutions claim they are engaged in some formof RBL. Turns out that most of these institutions could well befooling themselves at their peril.

Risk-based loan pricing when done properly has measurablepositive returns on investment (as much as 35 basis pointsimprovement in ROA). And there lies the crux of the debate – notmany RBL models actually use measurable, stochastic methods toprice consumer loans.

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