Internal Ratings-Based Approach
Article 142-188 CRR
Institutions may also calculate the regulatory capital charges for credit risk using a more risk-sensitive approach based on their own rating procedures, the Internal Ratings-Based Approach (IRBA), under which the risk weights are determined using borrower-based risk parameters (Part 2 Chapter 4 of the Solvency Regulation). Institutions can choose between a Foundation Approach (under which the institution only has to estimate the borrower's probability of default (PD)) and an Advanced Approach (under which the institution calculates not only the PD but also the loss given default (LGD), conversion factors for off-balance-sheet business and residual maturities). The risk weights are calculated for individual risk exposures using an IRBA based on individually estimated parameters and classified by given asset classes, using risk weighting formulas. Since the institutions themselves estimate the risk parameters using IRBAs, supervisory approval, which can be given based on an on-site approval examination, is necessary prior to using these approaches.
Approvals granted for the use of an IRBA
Overview of institutions in Germany with approval to use supervisory models to determine capital charges for default risk.
Last updated: 10.01.2018
|Foundation IRB approach1|
The following institutions or groups of institutions have approval to use approaches with their own estimate of the probability of default in the exposure classes Central governments, Institutions and Corporates:
1 This list also contains banks which, in addition to approval to use the foundation IRB approach, have an IRBA approval for the exposure class Retail claims.
|Advanced IRB approach2|
The following institutions or groups of institutions have approval to use approaches with their own estimate/calculation of the PD (probability of default), LGD (loss given default), EAD (exposure at default) and effective maturity in the exposure classes Central governments, Institutions and Corporates:
2 This list also contains banks, which, in addition to approval to use the advanced IRB approach, have an IRBA approval for the exposure class Retail claims.
The following institutions or groups of institutions only have approval to use an Internal Ratings-Based Approach for the exposure class Retail claims: