Model Drift in a Credit Cycle
Every credit model is trained on a period that has already ended.
By Maya Okonkwo
A model trained through a benign decade learns that defaults are rare. It is correct, right up until the cycle turns, and then it is confidently wrong at exactly the worst moment.
The model did not degrade. The world did.
Stress testing against synthetic downturns is now standard at the lenders who survived the last one.