The disparity in PD and LGD estimates within the IRB framework and prospects for future improvement View Full Text


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Article Info

DATE

2019-04-02

AUTHORS

Patricia Stupariu, Juan Rafael Ruiz, Ángel Vilariño

ABSTRACT

The internal ratings-based approach (IRB) to calculating capital requirements for credit risk was the main novelty brought about by Basel II and remains fundamentally unchanged in Basel III. The adequacy of this framework has been controversial since its inception, but throughout the years, most regulators and the banking industry have remained among its strong supporters. This paper focuses on some of the most problematic elements of the IRB approach, concerning the estimation of the main parameters capital requirements depend on and the difficulty embedded in the validation process. In the light of these difficulties, it concludes maintaining the IRB approach in its current form and scope reflects an overly optimistic stance with respect to financial institutions’ ability to accurately estimate critical risk parameters and prospects for future improvements. More... »

PAGES

1-7

References to SciGraph publications

  • 2010-03. Basel II as a casualty of the global financial crisis in JOURNAL OF BANKING REGULATION
  • 2005-05. Interpreting the internal ratings-based capital requirements in Basel II in JOURNAL OF BANKING REGULATION
  • Identifiers

    URI

    http://scigraph.springernature.com/pub.10.1057/s41261-019-00099-9

    DOI

    http://dx.doi.org/10.1057/s41261-019-00099-9

    DIMENSIONS

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