Regulatory Alerts2012-03-22
The Internal Ratings-Based (IRB) Approach to Credit Risk
The Supervisor of Banks issues this directive to establish the Internal Ratings-Based (IRB) approach, allowing approved banking corporations to use internal estimates of risk components to determine capital requirements for credit risk. The framework mandates the categorization of exposures into specific asset classes, including corporate, sovereign, bank, retail, and equity, while defining detailed criteria for subclasses such as specialized lending and qualifying revolving retail exposures. It further specifies the mechanics for calculating capital requirements based on unexpected losses using risk-weight functions and outlines the minimum supervisory requirements for implementation.
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