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The FRTB revisions address deficiencies relating to the existing [8] Standardised approach and Internal models approach [9] and particularly revisit the following: . The boundary between the "trading book" and the "banking book": [10] i.e. assets intended for active trading; as opposed to assets expected to be held to maturity, usually customer loans, and deposits from retail and corporate ...
The LGD calculation is easily understood with the help of an example: If the client defaults with an outstanding debt of $200,000 and the bank or insurance is able to sell the security (e.g. a condo) for a net price of $160,000 (including costs related to the repurchase), then the LGD is 20% (= $40,000 / $200,000).
The standardized approach for counterparty credit risk (SA-CCR) is the capital requirement framework under Basel III addressing counterparty risk for derivative trades. [1] It was published by the Basel Committee in March 2014.
Basel III requires banks to have a minimum CET1 ratio (Common Tier 1 capital divided by risk-weighted assets (RWAs)) at all times of: . 4.5%; Plus: A mandatory "capital conservation buffer" or "stress capital buffer requirement", equivalent to at least 2.5% of risk-weighted assets, but could be higher based on results from stress tests, as determined by national regulators.
The term Foundation IRB or F-IRB is an abbreviation of foundation internal ratings-based approach, and it refers to a set of credit risk measurement techniques proposed under Basel II capital adequacy rules for banking institutions.
Examples of static characteristics are industry for wholesale loans and origination "loan to value ratio" for retail loans. An unstressed PD is an estimate that the obligor will default over a particular time horizon considering the current macroeconomic as well as obligor specific information.
In subsequent years, the Basel Committee updated the standards for market risk, based on a “Fundamental Review of the Trading Book” (FRTB). [6] In addition, further reforms of the framework were published by the Basel Committee in 2017 under the title Basel III: Finalising post-crisis reforms. [2]
In this approach, banks calculate their own risk parameters subject to meeting some minimum guidelines. However, the foundation approach is not available for Retail exposures. For equity exposures, calculation of risk-weighted assets not held in the trading book can be calculated using two different ways: a PD/LGD approach or a market-based ...