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. 14 Regulatory Reform Review | Banking 14