If risk managers are required to assign high probabilities to extreme scenarios, such as those of the last year, the volume of lending and risk-taking more generally will be seriously and dangerously reduced. It is neither wise nor efficient for the management of financial firms or their regulators to require financial institutions to become excessively risk averse in their lending and market activities.
Assessments of individual borrowers usually refer to a time horizon of one year, a practice that most foreign banks also follow. The models in use are not able to take systematic account of the different maturities of operations, while economic theory and experience both indicate that the maturity of loans can have a marked impact on the related credit risks.