Regulatory Alerts2022-05-17
Explanatory note on portfolio risk modelling in the New Zealand context
The Reserve Bank of New Zealand issued this note to explain the background of its portfolio risk modelling conducted during the Capital Review. It details the application of the Basel Internal Ratings-Based approach to the New Zealand banking system, highlighting significant limitations regarding data scarcity, model assumptions, and the lack of diversification in local banks. The document outlines the methodology for estimating key risk parameters and demonstrates how sensitivity and Monte Carlo analyses were used to assess appropriate minimum capital requirements.
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