On Measures for Illustrating Credit Risk Assessments: the case of heat maps, risk matrices, and cubes

The financial crisis has revealed gaps in both the information available for analysis, and the ways of illustrating assessments carried out (based on information already available). This paper describes a novel way of illustrating the Riksbank’s credit risk assessment of the Swedish banking sector. The illustration consists in a credit risk matrix as well as a credit risk cube (“heat map”) in which categories of borrower in the regions where the Swedish banks’ are present are assessed in two or three dimensions; exposure (E), probability of default (PD), and Loss Given Default (LGD).