Standardized approach (credit risk)

Standardized approach (credit risk)

The term standardized approach (or standardised approach) refers to a set of credit risk measurement techniques proposed under Basel II capital adequacy rules for banking institutions.

Under this approach the banks are required to use ratings from External Credit Rating Agencies to quantify required capital for credit risk. In many countries this is the only approach the regulators are planning to approve in the initial phase of Basel II Implementation.

The summary of risk weights in standardized approach

There are some options in weighting risks for some claims, below are the summary as it might be likely to be implemented.

NOTE: For some "unrated" risk weights, banks are encouraged to use their own internal-ratings system based on Foundation IRB and Advanced IRB in Internal-Ratings Based approach with a set of formulae provided by the Basel-II accord. There exist several alternative weights for some of the following claim categories published in the original Framework text.

*Claims on sovereigns

*Claims on retail products

This includes credit card, overdraft, auto loans, personal finance and small business.

Risk weight: 75%

*Claims secured by residential property

Risk weight: 35%

*Claims secured by commercial real estate

Risk weight: 100%

*Overdue loansmore than 90 days other than residential mortgage loans.

Risk weight:

150% for provisions are less than 20% of the outstanding amount

100% for provisions are between 20% - 49% of the outstanding amount

100% with supervisory discretion to reduce to 50% for provisions are 50% and more of the outstanding amount

*Other assets

Risk weight: 100%

*Cash

Risk weight: 0%

References

* [http://www.bis.org/publ/bcbsca.htm Basel II: Revised international capital framework (BCBS)]
* [http://www.bis.org/publ/bcbs107.htm Basel II: International Convergence of Capital Measurement and Capital Standards: a Revised Framework (BCBS)]
* [http://www.bis.org/publ/bcbs118.htm Basel II: International Convergence of Capital Measurement and Capital Standards: a Revised Framework (BCBS) (November 2005 Revision)]
* [http://www.bis.org/publ/bcbs128.pdf Basel II: International Convergence of Capital Measurement and Capital Standards: a Revised Framework, Comprehensive Version (BCBS) (June 2006 Revision)]


Wikimedia Foundation. 2010.

Игры ⚽ Нужна курсовая?

Look at other dictionaries:

  • Standardized approach — According to International Convergence of Capital Measurement and Capital Standards, known as Basel II, the standardized approach is a set of risk measurement techniques for banking institutions. The term may be used in the context of credit risk …   Wikipedia

  • Credit risk — Categories of financial risk Credit risk Concentration risk Market risk Interest rate risk Currency risk Equity risk Commodity risk Liquidity risk Refinancing risk …   Wikipedia

  • Credit default swap — If the reference bond performs without default, the protection buyer pays quarterly payments to the seller until maturity …   Wikipedia

  • Operational risk — Categories of financial risk Credit risk Concentration risk Market risk Interest rate risk Currency risk Equity risk Commodity risk Liquidity risk Refinancing risk …   Wikipedia

  • Market risk — Categories of financial risk Credit risk Concentration risk Market risk Interest rate risk Currency risk Equity risk Commodity risk Liquidity risk Refinancing risk …   Wikipedia

  • Economic Affairs — ▪ 2006 Introduction In 2005 rising U.S. deficits, tight monetary policies, and higher oil prices triggered by hurricane damage in the Gulf of Mexico were moderating influences on the world economy and on U.S. stock markets, but some other… …   Universalium

  • Commodity Futures Modernization Act of 2000 — The Commodity Futures Modernization Act of 2000 (CFMA) is United States federal legislation that officially ensured the deregulation of financial products known as over the counter derivatives. It was signed into law on December 21, 2000 by… …   Wikipedia

  • china — /chuy neuh/, n. 1. a translucent ceramic material, biscuit fired at a high temperature, its glaze fired at a low temperature. 2. any porcelain ware. 3. plates, cups, saucers, etc., collectively. 4. figurines made of porcelain or ceramic material …   Universalium

  • China — /chuy neuh/, n. 1. People s Republic of, a country in E Asia. 1,221,591,778; 3,691,502 sq. mi. (9,560,990 sq. km). Cap.: Beijing. 2. Republic of. Also called Nationalist China. a republic consisting mainly of the island of Taiwan off the SE coast …   Universalium

  • Basel II Accord — Basel II (also known as Βασιλεία ΙΙ in Greek) is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. The purpose of Basel II, which was initially… …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”