Jump to Content Jump to Main Navigation

Part III Quantitative Capital Requirements, 7 Credit Risk Weighting—SA and IRB Approaches

Bart P.M. Joosen

From: Capital and Liquidity Requirements for European Banks (1)

Edited By: Bart P.M. Joosen, Marco Lamandini, Tobias H. Tröger

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved.date: 22 May 2024

Bank supervision — Credit risk — Basel 1 — Basel 2 — Capital requirement — Basel committee on Banking Supervision

This chapter traces the evolution of the Basel Committee on Banking Supervision (BCBS) standards in respect of credit risk. The First Basel Capital Accord of 1988 (Basel I) introduces uniform rules for the minimum capital that banks must hold in light of the risks that banks run in the credit business. Basel II codifies a number of rules that had been adopted since the adoption of Basel I in 1988. With regard to the weighting of the credit risk for (on) balance sheet items, banks can apply two methods, the Standard approach (SA) and the internal models method (Internal Ratings-Based Approach, ‘IRB’). The original foundations of the SA as laid down in Basel I of 1988 underpinned the risk weighting of credit risk exposures for about 30 years. However, the fundamental turn in the approach to risk weighting of the various exposure classes as a result of Basel III-Reform brought about major changes for European banks applying the SA. No less fundamental are the changes introduced for banks applying the IRB approach as a result of Basel III-Reform.

Users without a subscription are not able to see the full content. Please, subscribe or login to access all content.