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Apropos the article “A dynamic approach to assessing credit risk” (Business Line, June 7), the present-day credit risk assessment models convert every conceivable risk into mathematic models and ensure adequate provision in the balance-sheets.

Despite such advanced scientific models, the sub-prime crisis has put a good number of well-run western banks into fire-fighting mode on account of record losses.

The risk models obviously failed to foresee the risks associated with overheating of the markets and lending to non-credit-worthy home loan customers and the resultant ballooning effect on other banks that are distantly connected with the cause of the problem.

It is, therefore, obvious that the risk models can only assess the effects of known risks and quantify the reserve requirements to meet the same. These models cannot foresee or stop the unknown risks knocking at the doors.

P. E. Muthu Mumbai

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