Reducing variation in credit risk-weighted assets - constraints on the use of internal model approaches - consultative document.
The consultative document Reducing variation in credit risk-weighted assets - constraints on the use of internal model approaches sets out the Committee's proposed changes to the advanced internal ratings-based approach and the foundation internal ratings-based approach.
The proposed changes include a number of complementary measures that aim to: (i) reduce the complexity of the regulatory framework and improve comparability; and (ii) address excessive variability in the capital requirements for credit risk. Specifically, the Basel Committee proposes to:
- remove the option to use the IRB approaches for certain exposures, where it is judged that the model parameters cannot be estimated sufficiently reliably for regulatory capital purposes;
- adopt exposure-level, model-parameter floors to ensure a minimum level of conservatism for portfolios where the IRB approaches remain available; and
- provide greater specification of parameter estimation practices to reduce variability in risk-weighted assets (RWA) for portfolios where the IRB approaches remain available.
The Committee has previously consulted on the design of aggregate capital floors based on standardised approaches and is still considering the design and calibration. This would complement the proposed constraints discussed in this consultation paper.
The final design and calibration of the proposals will be informed by a comprehensive quantitative impact study and by the Committee's aim to not significantly increase overall capital requirements.
The Committee welcomes comments from the public on all aspects of the proposals described in this document here by Friday 24 June 2016. All comments will be published on the Bank for International Settlements website unless a respondent specifically requests confidential treatment.
- Publication Date: March 2016
- Publication Type: Consultative
- Publication Status: Closed
- Publication Category: Credit Risk
- Number of Pages: 18
- Keywords: Floors, IRB, Internal Ratings Based Approach, Constraints, Credit Risk
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