PwC's Managing upstream risk: Regulatory reform review - An asian perspective December 2013 | Page 14
use an internal ratings-based approach to
determine the capital requirement based on
the risk of the underlying pool of exposures,
including expected losses. The internal
ratings-based approach is risk-sensitive, yet
relatively easy to use and supervise.
• If this internal ratings-based approach
cannot be used for a particular securitisation
exposure, an external ratings-based
approach may be used (assuming that
the use of ratings is permitted within the
relevant jurisdiction). Unlike the existing
securitisation approach, however, capital
requirements need not be based on external
ratings if they are available; furthermore,
some jurisdictions may not wish to use this
approach at all.
• Finally, if neither of these approaches can
be used, a standardised approach would
be applied. This is based on the underlying
capital requirement that would apply under
the standardised approach for credit risk,
and other risk drivers.
In reviewing the calibration of the approaches,
the Committee has revised some of the
modeling assumptions behind the original
calibration proposed in the first consultative
document. These changes result in greater
consistency with the underlying credit risk
framework. They would lead to meaningful
reductions in capital requirements vis-à-vis
the initial proposals, yet would remain more
stringent than under the existing framework.
The Committee also proposes to set a 15 per
cent risk-weight floor for all approaches, instead
of the 20 per cent floor originally proposed.
In developing these proposals, the Committee
has carefully taken into account the comments
received on the first consultative document, as
well as the results of the related QIS. Revisions
have also been informed by the Committee’s
desire to strike an appropriate balance between
risk sensitivity, simplicity and comparability.
The second consultation closes for comments on
21 March 2014.
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Regulatory Reform Review | Banking
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