Reducing the variation of credit risk-weighted assets

The proposal of the Basel Committee on a new framework for internal model approaches

Seminararbeit , 2017 , 16 Seiten , Note: 1,3

BWL - Bank, Börse, Versicherung

The aim of this paper is to present the different proposals of the Basel Committee on Banking Supervision (BCBS) on the internal ratings-based (IRB) approach for credit risk and to find out about the effects that such measures may have on the financial sector as well as assessing if the measures are sufficient to reach the aspirations of the BCBS.

The remainder of this paper is organized as follows. The next section briefly describes the IRB approach under the Basel II accord and its current design. Section 3 discusses the reasons for the excessive variability in the regulatory capital requirements for credit risk. The focus of this paper is placed on section 4. It presents the different proposals concerning the IRB approach of the BCBS consolation document. Section 5 investigates the effects of the proposed measures of the BCBS. The final section summarizes the main conclusions.

Inhaltsverzeichnis (Table of Contents)

• Abbreviations
• 1 Introduction
• 2 IRB approaches for credit risk
• 3 Reasons for variation in credit RWA
• 4 Proposals of the BCBS to the IRB approaches for credit risk
  • 4.1 Applicability of internal modelling
  • 4.2 Parameter floors
  • 4.3 Parameter estimation practices and fixed parameters
  • 4.4 Output floors
• 5 Assessment of the consultation items
• 6 Conclusion
• References

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This paper aims to present the Basel Committee's proposals for revising the internal ratings-based approach and to assess whether these measures are sufficient to restore confidence in regulatory capital ratios. The paper explores the reasons for the excessive variation in credit risk-weighted assets (RWA) and investigates the effects of the proposed measures on the financial sector.

• The excessive variability in credit risk-weighted assets (RWA) and its impact on market confidence in regulatory capital ratios.
• The Basel Committee's proposals for revising the internal ratings-based approach (IRB).
• The potential impact of the proposed measures on the financial sector.
• The adequacy of the proposed measures in restoring confidence in regulatory capital ratios.
• The trade-off between risk sensitivity, simplicity, and comparability in the Basel framework.

Zusammenfassung der Kapitel (Chapter Summaries)

• Introduction: The chapter provides an overview of the Basel Committee's concerns regarding excessive variability in credit risk-weighted assets and introduces the proposed changes to the IRB approach as a response to these concerns.
• IRB approaches for credit risk: This chapter describes the internal ratings-based approach (IRB) under the Basel II accord and its objectives, including increased risk sensitivity and incentive compatibility. It outlines the two main IRB approaches: the foundation IRB (F-IRB) and the advanced IRB (A-IRB), and the requirements for banks to use these approaches.
• Reasons for variation in credit RWA: This chapter explores the factors contributing to the excessive variability in credit risk-weighted assets calculated using the IRB approach. It examines the potential impact of this variation on market confidence in regulatory capital ratios.
• Proposals of the BCBS to the IRB approaches for credit risk: This chapter delves into the specific proposals of the Basel Committee on Banking Supervision (BCBS) to address the issues raised in the previous chapter. These proposals focus on curtailing the use of internal models for certain exposures, introducing model-parameter floors, specifying parameter estimation practices, and implementing output floors based on the standardised approach (SA).

Schlüsselwörter (Keywords)

The paper explores key topics such as internal ratings-based approach (IRB), credit risk-weighted assets (RWA), Basel Committee on Banking Supervision (BCBS), internal models, parameter floors, parameter estimation practices, output floors, standardised approach (SA), risk sensitivity, simplicity, and comparability.

• Hochschule: Fachhochschule der Deutschen Bundesbank - Schloss Hachenburg
• Note: 1,3
• Autor: Anonym (Autor:in)
• Erscheinungsjahr: 2017
• Seiten: 16
• Katalognummer: V504593
• ISBN (eBook): 9783346061805
• ISBN (Buch): 9783346061812
• Sprache: Englisch
• Schlagworte: basel, committee, BCBS, RWA