Regulatory Alerts2022-05-17
Capital requirements for sovereign, bank and externally rated corporate exposures in the IRB approach
The Reserve Bank of New Zealand’s Financial Policy Committee recommends retaining the internal ratings-based approach for large corporate exposures while mandating the standardised approach for sovereign, bank, and local authority exposures. This decision reverses a previous in-principle directive after Quantitative Impact Study data revealed that external ratings are rare for New Zealand corporates and that internal models provide distinct risk assessments. The final framework simplifies capital calculations by limiting the standardised approach to categories where modelling difficulties and inconsistent outcomes previously justified its use.
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