Part II Commercial Banking, 9 Model Based Approaches to Risk Weighting
- Regulation of banks — Basel accords — Basel 2 — Capital requirement
9.01 Any and every financial institution expects to suffer some level of default—although no bank advances a facility expecting it not to be repaid, every bank knows from experience that some of the facilities which it advances will in fact not be repaid. Consequently, all properly-run banks make some provision for some level of default on their existing assets. This is known as expected loss. 9.02 Most banks will be sufficiently familiar with their own business to be able to estimate reasonably accurately the expected loss on their portfolio of assets as a whole....