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Usually, different classes of assets have different risk weights associated with them. The calculation of risk weights is dependent on whether the bank has adopted the standardized or IRB approach under the Basel II framework. [3] Some assets, such as debentures, are assigned a higher risk than others, such as cash or government securities/bonds.
The term Advanced IRB or A-IRB is an abbreviation of advanced 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.
Estimate the risk parameters—probability of default (PD), loss given default (LGD), exposure at default (EAD), maturity (M)—that are inputs to risk-weight functions designed for each asset class to arrive at the total risk weighted assets (RWA) The regulatory capital for credit risk is then calculated as 8% of the total RWA under Basel II.
The Basel II accord proposes to permit banks a choice between two broad methodologies for calculating their capital requirements for credit risk. The other alternative is based on internal ratings . Reforms to the standardised approach to credit risk are due to be introduced under the Basel III: Finalising post-crisis reforms .
In the context of operational risk, the standardized approach or standardised approach is a set of operational risk measurement techniques proposed under Basel II capital adequacy rules for banking institutions. Basel II requires all banking institutions to set aside capital for operational risk.
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.
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. [2] See Basel III: Finalising post-crisis reforms.
Advanced measurement approach (AMA) is one of three possible operational risk methods that can be used under Basel II by a bank or other financial institution.The other two are the Basic Indicator Approach and the Standardised Approach.