Question 15.15: Explain the difference between the standardized approach, th...
Explain the difference between the standardized approach, the IRB approach, and the Advanced IRB approach for calculating credit risk capital under Basel II.
The blue check mark means that this solution has been answered and checked by an expert. This guarantees that the final answer is accurate.
Learn more on how we answer questions.
Learn more on how we answer questions.
The standardized approach uses external ratings to determine capital requirements (but in a more sophisticated way than in Basel I). In the IRB approach, the Basel II correlation model is used with PD being determined by the bank. In the advanced IRB approach, the Basel II correlation model is used with PD, LGD, EAD, and M being determined by the bank.
Related Answered Questions
Question: 15.5
Verified Answer:
There is some exposure. If the counterparty defaul...
Question: 15.13
Verified Answer:
EAD is the estimated exposure at default. LGD is t...
Question: 15.18
Verified Answer:
The probability of five or more exceptions is 1-BI...
Question: 15.17
Verified Answer:
In this case, ρ = 0.1216, WCDR = 0.0914, and the c...
Question: 15.16
Verified Answer:
In the basic indicator approach, total capital is ...
Question: 15.14
Verified Answer:
Under the simple approach, the risk weight of the ...
Question: 15.2
Verified Answer:
Deposit insurance means that depositors are safe r...
Question: 15.12
Verified Answer:
Regulatory arbitrage involves entering into a tran...
Question: 15.11
Verified Answer:
Under Basel I, the capital charged for lending to ...
Question: 15.10
Verified Answer:
The trading book consists of instruments that are ...