Regulatory Alerts2013-05-23
Changes to Credit Risk Models for Calculating Required Capital and Reserve Funds
The Registrar of Banks requires internal ratings-based banks to obtain prior written approval for material model changes that decrease regulatory capital, while granting conditional approval for those that increase it. Materiality is assessed using quantitative thresholds, including a minimum one percent reduction in risk-weighted assets, alongside qualitative factors such as new model introductions and the removal of conservative overlays. Banks must maintain a documented communication policy and submit half-yearly written updates to facilitate the Office’s effective supervisory review and implementation of these credit risk model adjustments.
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