Risk Management
陳明道 教授
David M. Chen
Graduate Institute of Finance
003924@mail.fju.edu.tw
Crouhy, Michel, Dan Galai, and Robert Mark
McGraw-Hill, Inc., 2003
Ch. 1 The Need for Risk
Management Systems
International banking system
Consolidation* over the last 25 years
M&A, globalization
Financial Service Act of 1999
• New products, new markets, new business
activities*
• Repeal key provisions of the Glass-Steagall Act
– Passed during the Great Depression
– Prohibits commercial banks from
underwriting insurance and most kinds of
securities.
• Repeal key provisions of the Bank Holding Act
of 1956
– Prohibits M&A of brokerage firms, banks,
and insurers.
• Allows bank holding companies to expand their
range of services* and to take advantage of new
financial technologies such as web-based ecommerce.
– Puts brokerage firms and insurers on a par
with banks.
Changes in industry structure
Disintermediation
• Corporations found it less costly to raise money
from the public
– Reducing profit margins, lending in larger
sizes*, longer maturities, and to customers of
lower credit quality
Tailor-made financial services
• Customers are demanding more sophisticated and
complicated ways to finance their activities, to
hedge their financial risks, and to invest their
liquid assets.
Risk intermediation
• New market, credit, and operational risks
• Engaging in risk shifting activities*
– Managerial emphasis has shifted away from
maturity intermediation (term vs. risk spreads).
– From simplistic profit-oriented management
to risk/return management (similar to major
corporations).
– The Federal Reserve Bank (FRB) estimates
that in 1996, U.S. banks possessed over $37
tln of off-balance-sheet assets and liabilities;
$1 tln only 10 years earlier.
• Demand better and better expertise and knowhow in controlling and pricing the risks.
– Not by rejecting risk, but by quantifying risk
and thus pricing it appropriately.
Basle (Switzerland) Committee on Banking
Supervision (BCBS) of Bank for International
Settlements (BIS)
• 1988 BIS Accord
– Required to set aside a flat fixed percentage of
banks’ risk-weighted assets (8% corporate
loans, 4% uninsured residential mortgages) as
regulatory capital against default.
– Capital adequacy requirements are currently
tailored to the needs of traditional bank
holding companies.
• From 1998, required to hold additional regulatory
capital against market risk in trading books.
• New Accord: from 2006, required to hold
additional against operational risk: liquidity risk,
regulatory risk, human factor risk, legal risk, and
many other sources of risk*.
Integration (internally developed models)
• Risk management (RM) becomes an integral
part of the management and control process
rather than simply a tool to satisfy regulators.
Historical evolution
Banking regulations
Often dictates how financial institutions
accommodate risks.
• Converging and consistent across countries
The crash of 1929 and the economic crisis
• Focused on systematic risk: the risk of a collapse
of the banking industry at a regional, national, or
international level.
• In particular, to prevent the domino effect: the
chance of a failure by one bank might lead to
failure in another, and then another.*
1933 Federal Deposit Insurance Corporation (FDIC)
• Enhancing the safety of bank deposits.
1933 Glass-Steagall Act
• Define the playing field for commercial banks
– Barred from dealing in equity and from
underwriting securities (effectively separated
commercial and investment banking activities).
1933 Regulation Q
• Put a ceiling on the interest rate that could be paid
on savings account.
• Reserve requirements encouraged banks to offer
checking accounts that did not pay interest.*
1927 McFadden Act
• Prohibited banks from establishing branches in
multiple states (interstate branching)
• State regulations led to the establishment of many
small banks that specialize in a particular local
market**.
• Helped to support natural regional monopolies in
the supply of banking services.
1956 Bank Holding Company Act
• Limited the nonbanking* activities of banks.
• Felt that if banks expanded into new and risky
areas, they might introduce idiosyncratic risk, or
specific risk, that would affect the soundness of
the whole banking system.
Reduced both the risk and competition
Banking environment
From World War II to 1951
• Interest rates had been pegged 釘住and were not
used as a tool in the monetary policy of the
Federal Reserve.
– Interest rates were stable over an extended
period of time, with only small changes
occurring from time to time.
• 1944 Bretton Woods Agreement
– International foreign exchange rate were
artificially人為fixed.
– Central banks intervened whenever necessary
to maintain stability.
– Exchange rates were changed only
infrequently, with the permission of the World
Bank and the International Monetary Fund
(IMF). They usually required a country that
devalued its currency to adopt tough
economic measures in order to ensure the
stability of the currency in the future.
From 1951
• The governments of developed economies had
begun their slow but consistent withdrawal from
their role as insurers or managers of certain risks*.
• Broke down of the regime of fixed exchange rates
from the late 1960s
– Due to global economic forces including a
vast expansion of international trading and
inflationary pressure in the major economies.
– The hitherto obscured volatility surfaced in
traded foreign currencies, precipitated a string
of novel financial contracts.
– In 1972 the Chicago Mercantile Exchange
(CME) created the International Monetary
Market (IMM) to specialize in foreign
currency futures and options on futures on
the major currencies.
– In 1982 the Chicago Board Options
Exchange (CBOE) and the Philadelphia
Stock Exchange introduced options on spot
exchange rates.
• Interest rates became more volatile, intensified
in the 1970s and 1980s*.
– The increase in inflation and the advent of
floating exchange rates soon began to affect
interest rates.
– Volatility grew substantially from the early
1980s onwards, after the FRB under
chairman Paul Volcker decided to use money
supply as a major policy tool. Rates were
able to react to changes in the money supply
without prompting interference from the Fed.
– The first traded futures on the long-term bonds
issued by the Government National Mortgage
Association (GNMA) appeared in October
1975 on the Chicago Board of Trade (CBOT),
then futures on Treasury bonds in August 1977,
futures on Treasury notes in May 1982, and
options on Treasury bonds futures in October
1982.
– The CBOE introduced options on Treasury
bonds in the same month.
– The CME added futures on Treasury bills in
early 1976, futures on Eurodollars in 1981,
options on Eurodollar futures in March 1985,
and on Treasury bill futures in April 1986.
– Banks introduced the interest rate swap in
1982 and forward rate agreements (FRAs) in
early 1983.
– BIS survey of derivative markets, starting
April 1995, repeated every quarter, OTC
notional amount from over $47 tln end-March
1995 to over $80 tln end-December 1998.
– OTC gross market value from $2.2 tln to
$3.23 tln.
– OTC Daily turnover from $839 bln April
1995 to $ 1,226 bln April 1998.
– In April 1998, daily turnover of interest
contracts are $275 bln in the OTC markets
and $1,361 bln on exchanges. The situation
is completely different in the case of foreign
currency contracts, $990 bln OTC and $12
bln exchanges.
– Non-financial firms engaged in a daily
volume of $168 bln in OTC foreign currency
products, but traded only a volume of $27
bln in OTC interest rate products.
• Rapid changes in global markets
– Creation of large multinational corporations
– Technological change in the form of
computerized information system
– Both offered incentive to merge banks to
exploit economies of scale and be better
placed to serve the changing needs of global
clients.
– Mergers and globalization continuing
through the 1990s among nonbank
corporations.
– Regulatory bodies also became more willing
to allow competition on a global scale,
foreign banks were allowed to operate in
local markets, both directly and by acquiring
local banks.*
– This quickening process of globalization
exposes banks and other corporations to
ever-greater foreign currency and interest
rate risk, such as the risks associated with
cross-border fund raising.
Regulatory environment
1980 DIDMCA
The Depository Institutions Deregulation
and Monetary Control Act
• Marked a major change in regulatory philosophy
in the U.S.
• Deregulation of the banking system and the
liberalization of the economic environment in
which banks operate.
• Initiated a six-year phase-out period for
Regulation Q, allow commercial banks to pay
interest on accounts with withdrawal rights
(NOW accounts)
1982 DIA
Garn-St. Germain Depository Institution Act
• Allows banks to offer money market deposit
accounts and the super-NOW accounts (pay
money market interest but offered limited checkwriting privileges).
• By the late 1970s (inflation) and early 1980s, the
numbers of failed institutions (thrift and savings
banks) increased substantially. The main reason
was an economic squeeze on banks that held
sizable fixed-rate loan portfolios and which had
financed these portfolios by means of short-term
instruments*.
• Before it was changed*, Regulation Q helped to
drive small depositors away from such banks,
they turned instead to market traded instruments,
money market accounts, and NOW accounts.
• The charter of such banks prevent them from
using derivatives to deal with maturity mismatch.
The 1988 BIS Accord
The push to implement RM systems,
ironically, came primarily from the regulators.
• The story of bank regulation since the 1980s has
been one of an ongoing dialogue between the BIS
and commercial banks all over the world.
• The Bank of England and the Federal Reserve
Bank, concerned about the growing exposure of
banks to off-balance-sheet claims, coupled with
problem loans to third-world countries, their
response, first of all, was to strengthen the capital
requirements. In addition, they proposed
translating each off-balance-sheet claim into an
equivalent on-balance-sheet item.
• Secondly, they attempted to create a level playing
field by proposing that all international banks
should adopt the same capital standard and the
same procedures.
• While the regulatory bodies initiated the process
and drew up the first set of rules, they have
accepted that sophisticated banks should have a
growing role in the setting up of their own
internal RM models. With the principles set and
the course defined, the role of the regulators has
begun to shift to that of monitoring sophisticated
bank’s internal RM system.
July 1993 G-30 study
Was the first industry-led and
comprehensive effort to broaden awareness
of advanced approaches to RM.
• Provide practical guidance in the form of 20
recommendations, addressed to dealers and endusers alike, in terms of managing derivative
activities.
Academic background and
technological changes
Fundamental theories
Markowitz, Sharpe, Lintner, Modigliani,
Miller, Black, Scholes, Merton
• Background courses
Implementation
Reliable, broad, and up-to-date data bases
concerning both the bank’s transactional
positions and the financial rates available in
the wider market place.
Statistical tools and procedures that allow
the bank to analyze the data
• To assess the net risk exposure daily, a bank
must bring together data from a multiplicity of
legacy systems with different data structures,
from all of its branches and business worldwide.
• Estimates of volatilities and correlations of
major risk form key inputs into the pricing
model used to assess the risks inherent in the
various financial claims.
• In reaction to evidence that volatility in financial
markets may be nonstationary, researchers have
begun to make use of increasingly sophisticated
procedures such as ARCH, GARCH, and other
extensions.
Accounting systems
Backward looking
Past profits or losses are calculated and
analyzed, but future uncertainties are not
measured at all.
Off-balance-sheet
• As the GAAP could not easily accommodate
derivatives, the instruments have largely
appeared in the footnotes.
• The end result is that true risk profile is unclear
from financial reports.
Problem loans of March 31, 1998
• Under conventional accounting practices in Japan
as compared to the new proposed measurement
standard, for the largest nine banks, the average
understatement is 42% (29% to 62%).*
Forward looking
Two dimensional system
• Ideally the financial world would create a new
reporting system base on what might be called
“Generally Accepted Risk Principles”.
• Compromise between accuracy and sophistication,
on the one hand, and applicability and aggregation
(standard deviations are non-additive) on the other.
• Simply translating each off-balance-sheet claim to
its on-balance-sheet equivalent, and then adding up
these individual claims, would hugely overstate the
real position and impose a significant cost on banks.
Lessons from financial disasters
Causes
Bad debts
• Major cause since modern banks began to evolve
in the seventeenth century.
• The key weakness was that credit risk was
evaluated on a case-by-case basis. Correlation
risk was often ignored*.
Market exposures
• Some spectacular bank failure over the last 25
years generated by derivative positions.
Correlation between credit, market and
liquidity risks
• Predictably, high interest rate leads to low value
and low liquidity of real estate, which leads to
default, then leads to low interest rate.
• The near-collapse of Long-Term Capital
Management (LTCM) in 1998 highlight the risks
of high leverage to an individual institution.
– It also showed how problems in one
institution might spill over into the entire
financial system when, simultaneously,
market prices fall and market liquidity dries
up, making it almost impossible for wounded
institution to unwind their positions in order
to satisfy margin calls*.
• The industry as a whole is looking at how the
relationship between liquidity risk, leverage risk,
and market and credit risk can be incorporated in
risk measurement and stress testing models.
• No model offers a panacea to the problem of
substantial changes in default rates, interest rates,
exchange rates, and other key indexes over a
short time period. Increasingly, bank recognize
they must subject their positions to stress
analysis to measure their vulnerability to
unlikely but possible market scenarios.
Operating risk
• The downfall of Barings in February 1995 bore
witness to the failing of senior managers. They
lacked the ability to monitor trading activities
effectively.
– Due to a disregard for RM procedures
– A first principle is that the assessment of risk
and control over tracking transactions must
be independent of trading function.
– Must scrutinize success stories in order to
evaluate the risks incurred.
• The treasurer of the Orange County, California,
borrowed heavily and invested in MBSs, only to
incur losses of over $1.6 bln when the cost of
borrowing rose (1994).
– Showed excellent result at first.
Typology of risk exposure
Market risk
The risk that changes in financial market
prices and rates will reduce the value of the
bank’s position.
• Often measured relative to a benchmark index,
referred to the risk of tracking error.
• Also includes basis risk: the chance of a
breakdown in the relationship between the price
of a product and the price of the instrument used
to hedge that price exposure.
• Components of market risk: directional risk,
convexity risk, volatility risk, basis risk, etc.
Credit risk
The risk that a change in the credit quality of a
counterparty will affect the value.
• Only when the position is an asset, i.e., positive
replacement cost. Yet it can be negative at one
point in time and become positive at a later point.
Must examine the profile of future exposure up
to the termination of the deal.
• Default, whereby a counterparty is unwilling or
unable to fulfill its contractual obligation in the
extreme case.*
• Counterparty might be downgraded by a rating
agency (credit spread).
• The value it is likely to recover is called the
recovery value; the amount it is expected to lose
is called loss given default (LGD).
Liquidity risk
Funding liquidity risk
• Relates to a financial institution’s ability to raise
the necessary cash, to roll over its debt, to meet
the cash, margin, and collateral requirements of
counterparties, and to satisfy capital withdrawals
(mutual funds).
• Affected by various factors such as the maturity
of liabilities, the extent of reliance on secured
sources of funding, the terms of financing, and
the breadth of funding sources, including the
ability to access public markets such as the
commercial paper market.
• Also influenced by counterparty arrangements,
including collateral trigger clause, the existence
of capital withdrawal rights, and the existence of
lines of credit that the bank cannot cancel.
• Funding can be achieved through buying power:
the amount a trading counterparty can borrow
against asset under stressed market conditions.
Trading related liquidity risk
• Often simply called the liquidity risk, is the risk
that an institution will not be able to execute a
transaction at the prevailing market price,
because there is, temporarily, no appetite for the
deal on the “other side” of the market.
Operational risk
Fraud
• A trader or other employee intentionally falsifies
and misrepresents the risk incurred in a
transaction.
Technology risk
• Principally computer systems risk
Human factor risk
• Losses that may result from human error such as
pushing the wrong button*, inadvertently
destroying a file, or entering the wrong value for
the parameter input of a model.
Model risk
• The valuation of complex derivatives*
Legal risk
A counterparty might lack the legal or
regulatory authority to engage in a
transaction.
• Usually only become apparent when a
counterparty, or an investor, loses money on a
transaction and decided to sue the bank to avoid
meeting its obligation.
• The potential impact of a change in tax law on
the market value of a position.
Equity
General
Trading
Interest Rate
Specific
Gap
Market
Currency
Commodity
Financial
Risks
Transaction
Credit
Issue
Issuer
Concentration
Counterparty
Funding
Liquidity
Trading
Nonfinancial corporations RM
Purpose
To identify the market risk factors that affect
the volatility of their earnings, and to
measure the combined effect of these factor.
• There is mounting pressure from regulators such
as the SEC and from shareholders for more and
better disclosure of financial risk exposures.
• RM techniques are now being adopted by firms
such as insurance companies, hedge funds, and
industrial corporations.
• Generally need to look at risk over a longer time
• Must look at how to combine the effects of their
underlying business exposures with those of any
financial hedges.
• The effects of risk on planning and budgeting
must be considered.
• Often do not possess a formal system to monitor
general corporate risks and to evaluate the
impact of their various attempts to reduce risks.*
• There is little in the way of a unified approach to
corporate RM.
• Generally not regulated with the intensity seen
in financial institutions, because the main risk is
business risk; domino effect is not a major
concern; not as heavily leveraged (D/E 30%);
and the leverage is primarily of concern to the
firm’s creditor.
• Yet, daily average turnover in OTC derivatives
increased from $129 bln in April 1995 to $195
bln in April 1998.
• The trend in many countries is to demand greater
transparency with regard to RM policies and
strategies.
International Convergence
of Capital Measurement
and Capital Standards:
A Revised Framework
Basel Committee on Banking Supervision
Bank for International Settlements
June 2006 (comprehensive version)*
陳明道 教授
David M. Chen
Graduate Institute of Finance
Content
Introduction
Development of the new framework
Part 1: Scope of application
Part 2: The First Pillar
Minimum capital requirements
• Regulatory Capital
Credit risk: the standardized approach
Introduction
Development of the new framework
To secure international convergence on
revisions to supervisory regulations
governing the capital adequacy of
internationally active banks (IABs). #1
The first round of proposals June 1999.
• An extensive consultative process was set in
train in all G-10 member countries* and the
proposals were also circulated to supervisory
authorities worldwide.
Additional proposals for consultation in
January 2001 and April 2003.
• Three quantitative impact studies.
Implementation timetable
Intend to be available for implementation as
of year-end 2006. #2
• One further year of impact studies or parallel
calculations will be needed for the most
advanced approaches (2007).
Non-G10 countries #3
• Each national supervisor should consider
carefully the benefits of the revised Framework
in the context of its domestic banking system
when developing a timetable and approach to
implementation.
Fundamental objective
Further strengthen the soundness and
stability of the international banking system
• While maintaining sufficient consistency that
capital adequacy regulation will not be a
significant source of competitive inequality.
Main features
Promote the adoption of stronger RM
practices
• Take into account changes in banking and RM
practices. #4
• More risk-sensitive capital requirements that are
conceptually sound and at the same time pay due
regard to particular features of the present
supervisory and accounting systems in
individual member countries. #5
• Greater use of assessments of risk provided by
banks’ internal systems as inputs to capital
calculations (a detailed set of minimum
requirements designed to ensure the integrity of
these internal risk assessments). #6
• Provide a range of options for determining the
capital requirements for credit risk and
operational risk.
• Allow for a limited degree of national discretion
in the way in which each of these options may
be applied, to adapt the standards to different
conditions of national markets.
• An Accord Implementation Group (AIG) was
established to promote consistency in
application by encouraging supervisors to
exchange information on implementation
approaches. #7
Has issued general principles for the crossborder implementation and more focused
• principles for the recognition of operational risk
capital charges under advanced measurement
approaches for home and host supervisors. #8
Where a jurisdiction employs a
supplementary capital measure (such as a
leverage ratio or a large exposure limit) #9
• in conjunction with the measure set forth in this
Framework, in some instances the capital
required under the supplementary measure may
be more binding. More generally, under the
second pillar, supervisors should expect banks to
operate above minimum regulatory capital levels.
Interactions between regulatory and
accounting approaches at both the national
and international level #12
• can have significant consequences for the
comparability of the resulting measures of
capital adequacy and for the costs associated
with the implementation of these approaches.
• The decisions with respect to unexpected and
expected losses represent a major step forward
in this regard.
• Intend to continue playing a pro-active role in
the dialogue with accounting authorities in an
effort to reduce inappropriate disparities between
regulatory and accounting standards.
Has sought to clarify its expectations
regarding the need for banks using the
• advanced IRB approach to incorporate the
effects arising from economic downturns into
their loss-given-default (LGD) parameters. #13
A more forward-looking approach that has
the capacity to evolve with time. #15
• In July 2005, the Committee published additional
guidance developed jointly with the International
Organization of Securities Commissions (IOSCO).
• It refined the treatments of counterparty credit
risk, double default effects, short-term maturity
adjustment and failed transactions, and improved
the trading book* regime. #16
Intend to undertake additional work of a
longer-term nature in relation to the definition
of eligible capital.
• Will ultimately require the identification of an
agreed set of capital instruments that are available
to absorb unanticipated losses on a going-concern
basis. #17
Content
Part 1: Scope of Application
Part 2: The First Pillar – Minimum Capital
Requirements
I. Calculation of Minimum Capital Requirements
(Constituents of capital)
II. Credit Risk – The Standardized Approach
III. Credit Risk – The Internal Ratings-Based
Approach
IV. Credit Risk – The Securitization Framework
V. Operational Risk
VI. Market Risk
Part 3: The Second Pillar – Supervisory
Review Process
Part 4: The Third Pillar – Market Discipline
Part 1: Scope of application
IABs (consolidated basis)
Banking, securities, and other financial
subsidiaries (consolidated basis)
Significant minority investments in
banking, securities, and other financial
entities (deduction)
Insurance entities (deduction)
Significant investments in commercial
entities (deduction)
Deduction of investments (50% tier 1)
Where deductions of investments are made
pursuant to this part on scope of application,
• the deductions will be 50% from Tier 1 and 50%
from Tier 2 capital. #37
• Goodwill relating to entities subject to a
deduction approach pursuant to this part should
be deducted from Tier 1 in the same manner as
goodwill relating to consolidated subsidiaries.
• A similar treatment of goodwill should be
applied, if using an alternative group-wide
approach with respect to insurance entities. #38
• The limits on Tier 2 and Tier 3 capital and on
innovative Tier 1 instruments will be based on
the amount of Tier 1 capital after deduction of
goodwill but before the deductions of
investments pursuant to this part. #39
Part 2: The First Pillar
Minimum capital requirements
For credit, market and operational risk.
The capital ratio is calculated using the
definition of regulatory capital and riskweighted assets. #40
• The total capital ratio must be no lower than 8%.
• Tier 2 capital is limited to 100% of Tier 1 capital.
The definition of eligible regulatory capital,
• as outlined in the 1988 Accord and clarified in
the 27 October 1998 press release*, remains in
place except for the modifications as to the
deduction of investments (#37-39) and #43. #41
Risk-weighted assets
Total risk-weighted assets are determined
• by multiplying the capital requirements for
market risk and operational risk by 12.5 and
adding the resulting figures to the sum of riskweighted assets for credit risk.
• The Committee may apply a scaling factor in
order to broadly maintain the aggregate level of
minimum capital requirements, while also
providing incentives to adopt the more advanced
risk-sensitive approaches of the Framework.*
• The scaling factor is applied to the risk-weighted
asset amounts for credit risk assessed under the
IRB approach. #44
Transitional arrangements
For banks using the IRB approach for credit
risk or the Advanced Measurement
Approaches (AMA) for operational risk,
• there will be a capital floor following
implementation of this Framework.
• Banks must calculate the difference between (i)
the floor and (ii) the reference amount (#47). If
the floor amount is larger, banks are required to
add 12.5 times the difference to risk-weighted
assets. #45
The capital floor is based on application of
• the 1988 Accord. It is derived by applying an
adjustment factor to: (i) 8% of the risk-weighted
assets, (ii) plus Tier 1 and Tier 2 deductions, and
(iii) less the amount of general provisions that
may be recognized in Tier 2. #46
The Adjustment Factor
From yearend ’05
Foundation IRB Parallel
approach*
calculation
Advanced
Parallel
approaches
calculation
for credit and/or or impact
operational risk studies
From year- From year- From yearend ’06
end ’07
end ’08
95%
90%
80%
Parallel
90%
calculation
*The foundation IRB approach includes the IRB approach to retail.
80%
In the years in which the floor applies,
• banks must also calculate the reference amount
(i) 8% of total risk-weighted assets as calculated
under this Framework, (ii) less the difference
between total provisions and expected loss
amount (#374 to #386), and (iii) plus other Tier
1 and Tier 2 deductions.
• Where a bank uses the standardized approach to
credit risk for any portion of its exposures, it
also needs to exclude general provisions that
may be recognized in Tier 2 for that portion
from the reference amount. #47
Should problems emerge during this period,
• the Committee will seek to take appropriate
measures to address them, and, in particular, will
be prepared to keep the floors in place beyond
2009 if necessary. #48
The Committee believes it is appropriate for
supervisors to apply prudential floors
• to banks that adopt the IRB approach for credit
risk and/or the AMA for operational risk
following year-end 2008.
• For banks that do not complete the transition to
these approaches in the years specified in #46, it
is appropriate for supervisors to continue to
apply prudential floors to provide time to ensure
that individual bank implementations of the
advanced approaches are sound.
• However, floors based on the 1988 Accord will
become increasingly impractical to implement
over time and therefore supervisors should have
the flexibility to develop appropriate bank-bybank floors, subject to full disclosure of the
nature of the floors adopted. Such floors may be
based on the approach the bank was using before
adoption of the IRB approach and/or AMA. #49
Credit risk: the standardized approach
Based on external credit assessments #50
by external credit assessment institutions
• (ECAIs) recognized as eligible for capital
purposes by national supervisors.
• Banking book exposures should be riskweighted net of specific provisions.
• Exposures that are not explicitly addressed will
retain the 1988 Accord treatment.
• Exposures related to securitisation are dealt with
under the securitization framework.
• The credit equivalent amount of Securities
Financing Transactions (SFT) and OTC
derivatives is to be calculated under the rules set
out for counterparty credit risk (CCR). #52
Individual claims
Claims on sovereign #53
Claims on non-central government public
sector entities (PSEs)
Claims on multilateral development banks
(MDBs)
Claims on banks
Claims on securities firms
Claims on corporations (including insurance)
Claims included in the regulatory retail
portfolios
Claims secured by residential property
Claims secured by commercial real estate
Past due loans
Higher risk categories
Other assets
Off-balance sheet items