Based on our examinations of U.S. banks' internal risk-rating processes, I suspect that few banks would or should get a clean sign-off from their supervisor today. Despite the importance of evaluating a borrower's probability of default, banks have been surprisingly slow, it seems, to distinguish among acceptable credit risk levels in their pricing and in their own assessments of capital adequacy.
There are some pockets of stress, but the low numbers involved – less than 20,000 of the 5,300,000 housing loans in Australia are 90 days overdue on repayments – mean that this is not a macroeconomic problem, even though it is no doubt causing distress among those households and communities directly affected.