INTERNAL MODELS FOR THE CREDIT RISK MANAGEMENT

Original scientific paper
Autor: Viktorija Mišić

Summary: Basel Committee set out proposals for the internal rating based approach - IRB to the credit risk capital requirements. This approach is based on internal rating with the objective of enhancing the financial system safety and fairness function. The approach based on the bank’s internal rating of the counterparties and exposure is providing additional risk sensitivity, where capital requirements are based on internal ratings that may be significantly more sensitive to the credit risk and economic loss drivers in the bank portfolio. In support to the relevance of this topic, Basel III reform package covers, among others, also a higher quality risk coverage including capital requirement for the counterparty credit risk.

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