Total capital

8%
+ [MRCMarket 12.5]+[ORCOpr'l 12.5]

RWA Credit

Undisclosed reserves
Asset revaluation reserves
Tier 2
General provisions or
Supplementary
loan loss reserves
(only here in Tier 2)
Hybrid debt capital instruments
(Cumulative preferred stock)
Subordinated term debt

Tier 1 Equity capital: issued &

Core fully paid common stock
Non-cumulative, non-redeemable
preferred stock
Disclosed reserves
(Excludes Goodwill)

Credit Risk
Operational Risk
Market Risk
Tier 3
To meet market risk capital
requirements only
Short-term subordinated debt
Maturity at least 2 years
With covenant limiting payment
if impairs banks capital requirement

Credit
Risk

Operational
Risk
External Rating

Standardized
Claim
Type

$100 MM loan 20% (AAA) 8% capital = $1.6 MM

$100 MM loan 100% (BB-) 8% capital = $8.0 MM
Three Elements (IRB)
1. Risk Components
2. Risk-weight functions
3. Minimum requirements

Internal Estimate

Foundation IRB

PD EAD LGD M

Capital for UL only

EL with provisions
RWA=12.5 EAD K
K = LGD PD f(M)

1. Residential Mortgage
2. Qualifying Revolving
3. Small Bus Loans

Advanced IRB

Equities

Supervisor Supplied

Purchased
Receivables

Securitization

Mitigation (CRM)

Simple

True-sale conditions:
1. risk to 3rd party
2. seller doesnt control
3. securities not obligations
4. SPE holder rights

Substitute
Collateral Risk Weight

Comprehensive

Tranche

E* = (E + H) - (C - H - Hfx)

Derivatives

LGD

External
Ratings-based (RBA)

Foundation
LGD

E*

Standardized Approach (SA)

ASA

Retail Volume
max [ (GI lines 1 8 lines 1-8 ),0 ] Comml Volume

i =last three years

=
3

Elements
Must
Have
Internal External Scenario
Data
Data
Analysis

Supervisory
Formula (SF)

Advanced

Internal Assessment
Approach (IAA)

LGD

Board, Sr mgmt oversight

Capital assessment
Total risk assessment
Monitoring & reporting
Internal control review

Controls
& Tools
Mitigation

Correlations

Scorecard
Approach

Scope

Credit Risk

IRB stress tests

Definition of default
Residual risk
Concentration risk
Counterparty risk

Gross income as proxy

Market Risk

ee Elements (IRB)
isk Components
isk-weight functions
Minimum requirements

Equities

Banking Book

Currencies

Currencies

Commodities

Commodities

Qualitative disclosures

Capital adequacy

General qualitative disclosure

strategies & processes
organization of risk mgmt function
scope & nature of risk reporting & measurement
Policies for, and monitoring of, hedging & mitigation

Internal Models Approach (IMA)

Credit risk

Stress Testing

VaR

Green: <5

definitions of past due, impaired;

allowance approaches, policies

Additional requirement under IRB approaches

Market risk

Backtesting

10 day horizon
99% confidence
One year of data
Quarterly updating

Credit risk, equity in IRB, market

risk, operational risk, Total & Tier 1

Risk exposure and assessment

Standardized (sum the building blocks)

Qualitative Requirements

capital requirements for: interest rate

risk, equity position, FX and commodity

Operational Risk

exceptions

k+
Yellow: 5-9 0.4
Red: 10+
1.0

gain/loss from sale, req by group

Capital for UL only

EL with provisions

PD EAD LGD M

Different IRB Treatment

Retail

Equities

1. Residential Mortgage
2. Qualifying Revolving
3. Small Bus Loans

Purchased
Receivables

Mitigation (CRM)

Advanced IRB
Supervisor Supplied

Securitization

Simple

True-sale conditions:
1. risk to 3rd party
2. seller doesnt control
3. securities not obligations
4. SPE holder rights

Substitute
Collateral Risk Weight

Comprehensive
Reduce Exposure by Collateral (+ haircuts)

E* = (E + H) - (C - H - Hfx)

LGD

E*

Derivatives
Foundation
LGD

Advanced
LGD

ASA

Retail Volume

max
(
GI

),0
[
]

Comml Volume
lines 1 8
lines 1-8
i =last three years

=
3

Advanced Measurement
Approach (AMA)
Elements
Should Have
Controls
& Tools
Mitigation

Internal Measurement Approach (IMA)

(i,j) EI(i , j ) PE(i , j ) LGE(i , j )

Loss Distribution
Approach (LDA)

Correlations

Scorecard
Approach

Market
Risk

Scope
Trading Book
Equities

Banking Book

Currencies

Currencies

Commodities

Commodities

External Rating

Tranche

Standardized (sum the building blocks)

MRCtStandard = IR,EQ,FX ,CO,OP MRCt

IRB Approach

Collateral

i =last three years

(GIi )

Fixed-Income

Standardized

Senior: 45% LGD

Subord: 75% LGD

Elements
Must
Have
Internal External Scenario
Data
Data
Analysis

RWA=12.5 EAD K
K = LGD PD f(M)

Foundation

Basic Indicator Approach (BIA)

K SA

External
Ratings-based (RBA)

Supervisory
Formula (SF)
Internal Assessment
Approach (IAA)

Internal Models Approach (IMA)

Qualitative Requirements

VaR

10 day horizon
99% confidence
One year of data
Quarterly updating

description of approaches;
if AMA, factor and insurance

Banking book equities investment values, public/private,

Operational
Risk

K Operational ,BIA =

Quantitative disclosures
Tier 1 with breakdowns,
Tier 2 & 3, deductions, total eligible

Capital structure

Standardized Approach (SA)

Corporate, Sovereign
& Bank Exposures

Trading book eligibility

Valuation
IMA: Stress testing
IMA: Specific risk model

Trading Book

Internal Estimate

Foundation IRB

Third
Pillar

External Rating

$100 MM loan 20% (AAA) 8% capital = $1.6 MM

$100 MM loan 100% (BB-) 8% capital = $8.0 MM

Operational Risk

Market
Risk

Credit
Risk
Claim
Type

Good targets, processes

Captial adequacy
Control envirnonment
Min. standard compliance
Response (as needed)

4. Supervisor intervention

Banking book interest rate risk

Banking interest rate

Standardized

Specific Issues to be Addressed

Elements
Should Have

(i,j) EI(i , j ) PE(i , j ) LGE(i , j )

Loss Distribution
Approach (LDA)

2. Supervisor review

3. Supervisor response

Advanced Measurement
Approach (AMA)

MRCtStandard = IR,EQ,FX ,CO,OP MRCt

IRB Approach

Collateral

1. Rigorous bank process

External Rating

Reduce Exposure by Collateral (+ haircuts)

Senior: 45% LGD

Subord: 75% LGD

i =last three years

Key principles of supervisory review

(GIi )

Fixed-Income

Standardized

Foundation

K Operational ,BIA =

Internal Measurement Approach (IMA)

Different IRB Treatment

Retail

Basic Indicator Approach (BIA)

K SA

Corporate, Sovereign
& Bank Exposures

Second
Pillar

Stress Testing
Backtesting
Green: <5

exceptions

k+
Yellow: 5-9 0.4
Red: 10+
1.0

value change for rate shock,

broken down by currency

RWA Credit

Total capital
8%
+ [MRCMarket 12.5]+[ORCOpr'l 12.5]

Undisclosed reserves
Asset revaluation reserves
Tier 2
General provisions or
Supplementary
loan loss reserves
(only here in Tier 2)
Hybrid debt capital instruments
(Cumulative preferred stock)
Subordinated term debt

Tier 1 Equity capital: issued &

Core fully paid common stock
Non-cumulative, non-redeemable
preferred stock
Disclosed reserves
(Excludes Goodwill)

Credit Risk
Operational Risk
Market Risk
Tier 3
To meet market risk capital
requirements only
Short-term subordinated debt
Maturity at least 2 years
With covenant limiting payment
if impairs banks capital requirement

Credit
Risk

Operational
Risk
External Rating

Standardized
Claim
Type

$100 MM loan 20% ((AAA)) 8% capital = $1.6 MM

$100 MM loan 100% ((BB-) 8% capital = $8.0 MM
Three Elements (IRB)
1. Risk Components
2. Risk-weight functions
3. Minimum requirements

Internal Estimate

Foundation IRB

PD EAD LGD M

Capital for UL only

EL with provisions
RWA=12.5 EAD K
K = LGD PD f(M)

1. Residential Mortgage
2. Qualifying Revolving
3. Small Bus Loans

Equities
Purchased
Receivables

Mitigation (CRM)

Advanced IRB
Supervisor Supplied

Securitization

Simple

True-sale conditions:
1. risk to 3rd party
2. seller doesnt control
3. securities not obligations
4. SPE holder rights

Substitute
Collateral Risk Weight

Comprehensive
Reduce Exposure by Collateral (+ haircuts)

E* = (E + H) - (C - H - Hfx)

Collateral

LGD

E*

1. Rigorous bank process

Standardized Approach (SA)

Derivatives
Foundation
LGD

Advanced
LGD

ASA

Retail Volume
max [ (GI lines 1 8 lines 1-8 ),0 ] Comml Volume

i =last three years

=
3

Elements
Must
Have
Internal External Scenario
Data
Data
Analysis

Elements
Should Have
Controls
& Tools
Mitigation

(i,j) EI(i , j ) PE(i , j ) LGE(i , j )

Loss Distribution
Approach (LDA)

Scorecard
Approach

Tranche

Correlations

Supervisory
Formula (SF)
Internal Assessment
Approach (IAA)

Board, Sr mgmt oversight

Capital assessment
Total risk assessment
Monitoring & reporting
Internal control review

Good targets, processes

Captial adequacy
Control envirnonment
Min. standard compliance
Response (as needed)

4. Supervisor intervention

Specific Issues to be Addressed

Banking book interest rate risk

Operational Risk

Credit Risk

IRB stress tests

Definition of default
Residual risk
Concentration risk
Counterparty risk

Gross income as proxy

Market Risk

Trading book eligibility

Valuation
IMA: Stress testing
IMA: Specific risk model

Market
Risk

Scope
Trading Book
Equities

Banking Book

Currencies

Currencies

Commodities

Commodities

Standardized (sum the building blocks)

Internal Models Approach (IMA)

Qualitative Requirements

VaR

10 day horizon
99% confidence
One year of data
Quarterly updating

Third
Pillar
Qualitative disclosures

MRCtStandard = IR,EQ,FX ,CO,OP MRCt

External
Ratings-based (RBA)

2. Supervisor review

3. Supervisor response

Advanced Measurement
Approach (AMA)

External Rating

IRB Approach
Senior: 45% LGD
Subord: 75% LGD

i =last three years

Key principles of supervisory review

(GIi )

Fixed-Income

Standardized

Foundation

K Operational ,BIA =

Internal Measurement Approach (IMA)

Different IRB Treatment

Retail

Basic Indicator Approach (BIA)

K SA

Corporate, Sovereign
& Bank Exposures

Second
Pillar

Stress Testing
Backtesting
Green: <5

exceptions

k+
Yellow: 5-9 0.4
Red: 10+
1.0

Quantitative disclosures
Tier 1 with breakdowns,
Tier 2 & 3, deductions, total eligible

Capital structure
Capital adequacy

Credit risk, equity in IRB, market

risk, operational risk, Total & Tier 1

Risk exposure and assessment

General qualitative disclosure
strategies & processes
organization of risk mgmt function
scope & nature of risk reporting & measurement
Policies for, and monitoring of, hedging & mitigation

Credit risk

definitions of past due, impaired;

allowance approaches, policies

Additional requirement under IRB approaches

Market risk

capital requirements for: interest rate

risk, equity position, FX and commodity

Operational Risk

description of approaches;
if AMA, factor and insurance

Banking book equities investment values, public/private,

gain/loss from sale, req by group

Banking interest rate

value change for rate shock,

broken down by currency

RWA Credit

Total capital
8%
+ [MRCMarket 12.5]+[ORCOpr'l 12.5]

Undisclosed reserves
Asset revaluation reserves
Tier 2
General provisions or
Supplementary
loan loss reserves
(only here in Tier 2)
Hybrid debt capital instruments
(Cumulative preferred stock)
Subordinated term debt

Tier 1 Equity capital: issued &

Core fully paid common stock
Non-cumulative, non-redeemable
preferred stock
Disclosed reserves
(Excludes Goodwill)

Credit Risk
Operational Risk
Market Risk
Tier 3
To meet market risk capital
requirements only
Short-term subordinated debt
Maturity at least 2 years
With covenant limiting payment
if impairs banks capital requirement

Credit
Risk

Operational
Risk
External Rating

Standardized
Claim
Type

$100 MM loan 20% (AAA) 8% capital = $1.6 MM

$100 MM loan 100% (BB-) 8% capital = $8.0 MM
Three Elements (IRB)
1. Risk Components
2. Risk-weight functions
3. Minimum requirements

Internal Estimate

Foundation IRB

PD EAD LGD M

Capital for UL only

EL with provisions
RWA=12.5 EAD K
K = LGD PD f(M)

1. Residential Mortgage
2. Qualifying Revolving
3. Small Bus Loans

Advanced IRB

Equities

Supervisor Supplied

Purchased
Receivables

Mitigation (CRM)

Securitization

Simple

True-sale conditions:
1. risk to 3rd party
2. seller doesnt control
3. securities not obligations
4. SPE holder rights

Substitute
Collateral Risk Weight

Comprehensive
Reduce Exposure by Collateral (+ haircuts)

E* = (E + H) - (C - H - Hfx)

Foundation

LGD

ASA

Retail Volume
max [ (GI lines 1 8 lines 1-8 ),0 ] Comml Volume

i =last three years

=
3

Elements
Must
Have
Internal External Scenario
Data
Data
Analysis

External
Ratings-based (RBA)

Supervisory
Formula (SF)

Advanced

Internal Assessment
Approach (IAA)

LGD

Board, Sr mgmt oversight

Capital assessment
Total risk assessment
Monitoring & reporting
Internal control review

Controls
& Tools
Mitigation

Correlations

Scorecard
Approach

Scope

Credit Risk

IRB stress tests

Definition of default
Residual risk
Concentration risk
Counterparty risk

Gross income as proxy

Market Risk

Three Elements (IRB)

1. Risk Components
2. Risk-weight functions
3. Minimum requirements

Equities

Banking Book

Currencies

Currencies

Commodities

Commodities

Qualitative disclosures

Capital adequacy

General qualitative disclosure

strategies & processes
organization of risk mgmt function
scope & nature of risk reporting & measurement
Policies for, and monitoring of, hedging & mitigation

Credit risk

VaR

Green: <5

definitions of past due, impaired;

allowance approaches, policies

Additional requirement under IRB approaches

Market risk

Backtesting

10 day horizon
99% confidence
One year of data
Quarterly updating

Credit risk, equity in IRB, market

risk, operational risk, Total & Tier 1

Risk exposure and assessment

Stress Testing

Qualitative Requirements

capital requirements for: interest rate

risk, equity position, FX and commodity

Operational Risk

exceptions

k+
Yellow: 5-9 0.4
Red: 10+
1.0

Capital for UL only

EL with provisions

PD EAD LGD M

gain/loss from sale, req by group

Different IRB Treatment

Retail

1. Residential Mortgage
2. Qualifying Revolving
3. Small Bus Loans

Equities
Purchased
Receivables

Mitigation (CRM)

Advanced IRB
Supervisor Supplied

Securitization

Simple

True-sale conditions:
1. risk to 3rd party
2. seller doesnt control
3. securities not obligations
4. SPE holder rights

Substitute
Collateral Risk Weight

Comprehensive
Reduce Exposure by Collateral (+ haircuts)

E* = (E + H) - (C - H - Hfx)

Collateral

LGD

E*

Derivatives
Foundation
LGD

Advanced
LGD

i =last three years

(GIi )

Standardized Approach (SA)

ASA

Retail Volume

max
(
GI

),0
[
]

Comml Volume
lines 1 8
lines 1-8
i =last three years

=
3

Advanced Measurement
Approach (AMA)
Elements
Should Have
Controls
& Tools
Mitigation

Internal Measurement Approach (IMA)

(i,j) EI(i , j ) PE(i , j ) LGE(i , j )

Loss Distribution
Approach (LDA)

Correlations

Scorecard
Approach

Market
Risk

Scope
Trading Book
Equities

Banking Book

Currencies

Currencies

Commodities

Commodities

External Rating

Tranche

Standardized (sum the building blocks)

MRCtStandard = IR,EQ,FX ,CO,OP MRCt

IRB Approach
Senior: 45% LGD
Subord: 75% LGD

Fixed-Income

Standardized

Foundation

Basic Indicator Approach (BIA)

Elements
Must
Have
Internal External Scenario
Data
Data
Analysis

RWA=12.5 EAD K
K = LGD PD f(M)

External
Ratings-based (RBA)

Supervisory
Formula (SF)
Internal Assessment
Approach (IAA)

Internal Models Approach (IMA)

Qualitative Requirements

VaR

10 day horizon
99% confidence
One year of data
Quarterly updating

description of approaches;
if AMA, factor and insurance

Banking book equities investment values, public/private,

Operational
Risk

K Operational ,BIA =

Quantitative disclosures
Tier 1 with breakdowns,
Tier 2 & 3, deductions, total eligible

Capital structure

Internal Models Approach (IMA)

K SA

Corporate, Sovereign
& Bank Exposures

Trading book eligibility

Valuation
IMA: Stress testing
IMA: Specific risk model

Trading Book

Internal Estimate

Foundation IRB

Third
Pillar

External Rating

$100 MM loan 20% ((AAA)) 8% capital = $1.6 MM

$100 MM loan 100% ((BB-) 8% capital = $8.0 MM

Operational Risk

Market
Risk

Credit
Risk
Claim
Type

Good targets, processes

Captial adequacy
Control envirnonment
Min. standard compliance
Response (as needed)

4. Supervisor intervention

Banking book interest rate risk

Banking interest rate

Standardized

Specific Issues to be Addressed

Elements
Should Have

(i,j) EI(i , j ) PE(i , j ) LGE(i , j )

Loss Distribution
Approach (LDA)

2. Supervisor review

3. Supervisor response

Advanced Measurement
Approach (AMA)

Standardized (sum the building blocks)

Tranche

LGD

E*

Standardized Approach (SA)

MRCtStandard = IR,EQ,FX ,CO,OP MRCt

Derivatives

Collateral

1. Rigorous bank process

External Rating

IRB Approach
Senior: 45% LGD
Subord: 75% LGD

i =last three years

Key principles of supervisory review

(GIi )

Fixed-Income

Standardized

Foundation

K Operational ,BIA =

Internal Measurement Approach (IMA)

Different IRB Treatment

Retail

Basic Indicator Approach (BIA)

K SA

Corporate, Sovereign
& Bank Exposures

Second
Pillar

Stress Testing
Backtesting
Green: <5

exceptions

k+
Yellow: 5-9 0.4
Red: 10+
1.0

value change for rate shock,

broken down by currency

Total capital
8%
+ [MRCMarket 12.5]+[ORCOpr'l 12.5]

RWA Credit

Undisclosed reserves
Asset revaluation reserves
Tier 2
General provisions or
Supplementary
loan loss reserves
(only here in Tier 2)
Hybrid debt capital instruments
(Cumulative preferred stock)
Subordinated term debt

Tier 1 Equity capital: issued &

Core fully paid common stock
Non-cumulative, non-redeemable
preferred stock
Disclosed reserves
(Excludes Goodwill)

Credit Risk
Operational Risk
Market Risk
Tier 3
To meet market risk capital
requirements only
Short-term subordinated debt
Maturity at least 2 years
With covenant limiting payment
if impairs banks capital requirement

Credit
Risk

Operational
Risk
External Rating

Standardized
Claim
Type

$100 MM loan 20% (AAA) 8% capital = $1.6 MM

$100 MM loan 100% (BB-) 8% capital = $8.0 MM
Three Elements (IRB)
1. Risk Components
2. Risk-weight functions
3. Minimum requirements

Internal Estimate

Foundation IRB

PD EAD LGD M

Capital for UL only

EL with provisions
RWA=12.5 EAD K
K = LGD PD f(M)

1. Residential Mortgage
2. Qualifying Revolving
3. Small Bus Loans

Advanced IRB

Equities

Supervisor Supplied

Purchased
Receivables

Securitization

Mitigation (CRM)

Simple

True-sale conditions:
1. risk to 3rd party
2. seller doesnt control
3. securities not obligations
4. SPE holder rights

Substitute
Collateral Risk Weight

Comprehensive

Tranche

E* = (E + H) - (C - H - Hfx)

Derivatives

LGD

External
Ratings-based (RBA)

Foundation
LGD

E*

Standardized Approach (SA)

ASA

Retail Volume
max [ (GI lines 1 8 lines 1-8 ),0 ] Comml Volume

i =last three years

=
3

Elements
Must
Have
Internal External Scenario
Data
Data
Analysis

Supervisory
Formula (SF)

Advanced

Internal Assessment
Approach (IAA)

LGD

Board, Sr mgmt oversight

Capital assessment
Total risk assessment
Monitoring & reporting
Internal control review

Controls
& Tools
Mitigation

Correlations

Scorecard
Approach

Scope

Credit Risk

IRB stress tests

Definition of default
Residual risk
Concentration risk
Counterparty risk

Gross income as proxy

Market Risk

ee Elements (IRB)
isk Components
isk-weight functions
Minimum requirements

Equities

Banking Book

Currencies

Currencies

Commodities

Commodities

Qualitative disclosures

Capital adequacy

General qualitative disclosure

strategies & processes
organization of risk mgmt function
scope & nature of risk reporting & measurement
Policies for, and monitoring of, hedging & mitigation

Internal Models Approach (IMA)

Credit risk

Stress Testing

VaR

Green: <5

definitions of past due, impaired;

allowance approaches, policies

Additional requirement under IRB approaches

Market risk

Backtesting

10 day horizon
99% confidence
One year of data
Quarterly updating

Credit risk, equity in IRB, market

risk, operational risk, Total & Tier 1

Risk exposure and assessment

Standardized (sum the building blocks)

Qualitative Requirements

capital requirements for: interest rate

risk, equity position, FX and commodity

Operational Risk

exceptions

k+
Yellow: 5-9 0.4
Red: 10+
1.0

gain/loss from sale, req by group

Capital for UL only

EL with provisions

PD EAD LGD M

Different IRB Treatment

Retail

Equities

1. Residential Mortgage
2. Qualifying Revolving
3. Small Bus Loans

Purchased
Receivables

Mitigation (CRM)

Advanced IRB
Supervisor Supplied

Securitization

Simple

True-sale conditions:
1. risk to 3rd party
2. seller doesnt control
3. securities not obligations
4. SPE holder rights

Substitute
Collateral Risk Weight

Comprehensive
Reduce Exposure by Collateral (+ haircuts)

E* = (E + H) - (C - H - Hfx)

LGD

E*

Derivatives
Foundation
LGD

Advanced
LGD

ASA

Retail Volume

max
(
GI

),0
[
]

Comml Volume
lines 1 8
lines 1-8
i =last three years

=
3

Advanced Measurement
Approach (AMA)
Elements
Should Have
Controls
& Tools
Mitigation

Internal Measurement Approach (IMA)

(i,j) EI(i , j ) PE(i , j ) LGE(i , j )

Loss Distribution
Approach (LDA)

Correlations

Scorecard
Approach

Market
Risk

Scope
Trading Book
Equities

Banking Book

Currencies

Currencies

Commodities

Commodities

External Rating

Tranche

Standardized (sum the building blocks)

MRCtStandard = IR,EQ,FX ,CO,OP MRCt

IRB Approach

Collateral

i =last three years

(GIi )

Fixed-Income

Standardized

Senior: 45% LGD

Subord: 75% LGD

Elements
Must
Have
Internal External Scenario
Data
Data
Analysis

RWA=12.5 EAD K
K = LGD PD f(M)

Foundation

Basic Indicator Approach (BIA)

K SA

External
Ratings-based (RBA)

Supervisory
Formula (SF)
Internal Assessment
Approach (IAA)

Internal Models Approach (IMA)

Qualitative Requirements

VaR

10 day horizon
99% confidence
One year of data
Quarterly updating

description of approaches;
if AMA, factor and insurance

Banking book equities investment values, public/private,

Operational
Risk

K Operational ,BIA =

Quantitative disclosures
Tier 1 with breakdowns,
Tier 2 & 3, deductions, total eligible

Capital structure

Standardized Approach (SA)

Corporate, Sovereign
& Bank Exposures

Trading book eligibility

Valuation
IMA: Stress testing
IMA: Specific risk model

Trading Book

Internal Estimate

Foundation IRB

Third
Pillar

External Rating

$100 MM loan 20% (AAA) 8% capital = $1.6 MM

$100 MM loan 100% (BB-) 8% capital = $8.0 MM

Operational Risk

Market
Risk

Credit
Risk
Claim
Type

Good targets, processes

Captial adequacy
Control envirnonment
Min. standard compliance
Response (as needed)

4. Supervisor intervention

Banking book interest rate risk

Banking interest rate

Standardized

Specific Issues to be Addressed

Elements
Should Have

(i,j) EI(i , j ) PE(i , j ) LGE(i , j )

Loss Distribution
Approach (LDA)

2. Supervisor review

3. Supervisor response

Advanced Measurement
Approach (AMA)

MRCtStandard = IR,EQ,FX ,CO,OP MRCt

IRB Approach

Collateral

1. Rigorous bank process

External Rating

Reduce Exposure by Collateral (+ haircuts)

Senior: 45% LGD

Subord: 75% LGD

i =last three years

Key principles of supervisory review

(GIi )

Fixed-Income

Standardized

Foundation

K Operational ,BIA =

Internal Measurement Approach (IMA)

Different IRB Treatment

Retail

Basic Indicator Approach (BIA)

K SA

Corporate, Sovereign
& Bank Exposures

Second
Pillar

Stress Testing
Backtesting
Green: <5

exceptions

k+
Yellow: 5-9 0.4
Red: 10+
1.0

value change for rate shock,

broken down by currency

Total capital
8%
+ [MRCMarket 12.5]+[ORCOpr'l 12.5]

RWA Credit

Undisclosed reserves
Asset revaluation reserves
Tier 2
General provisions or
Supplementary
loan loss reserves
(only here in Tier 2)
Hybrid debt capital instruments
(Cumulative preferred stock)
Subordinated term debt

Tier 1 Equity capital: issued &

Core fully paid common stock
Non-cumulative, non-redeemable
preferred stock
Disclosed reserves
(Excludes Goodwill)

Credit Risk
Operational Risk
Market Risk
Tier 3
To meet market risk capital
requirements only
Short-term subordinated debt
Maturity at least 2 years
With covenant limiting payment
if impairs banks capital requirement

Credit
Risk

Operational
Risk
External Rating

Standardized
Claim
Type

$100 MM loan 20% (AAA) 8% capital = $1.6 MM

$100 MM loan 100% (BB-) 8% capital = $8.0 MM
Three Elements (IRB)
1. Risk Components
2. Risk-weight functions
3. Minimum requirements

Internal Estimate

Foundation IRB

PD EAD LGD M

Capital for UL only

EL with provisions
RWA=12.5 EAD K
K = LGD PD f(M)

1. Residential Mortgage
2. Qualifying Revolving
3. Small Bus Loans

Advanced IRB

Equities

Supervisor Supplied

Purchased
Receivables

Securitization

Mitigation (CRM)

Simple

True-sale conditions:
1. risk to 3rd party
2. seller doesnt control
3. securities not obligations
4. SPE holder rights

Substitute
Collateral Risk Weight

Comprehensive

Tranche

E* = (E + H) - (C - H - Hfx)

Derivatives

LGD

External
Ratings-based (RBA)

Foundation
LGD

E*

Standardized Approach (SA)

ASA

Retail Volume
max [ (GI lines 1 8 lines 1-8 ),0 ] Comml Volume

i =last three years

=
3

Elements
Must
Have
Internal External Scenario
Data
Data
Analysis

Supervisory
Formula (SF)

Advanced

Internal Assessment
Approach (IAA)

LGD

Board, Sr mgmt oversight

Capital assessment
Total risk assessment
Monitoring & reporting
Internal control review

Controls
& Tools
Mitigation

Correlations

Scorecard
Approach

Scope

Credit Risk

IRB stress tests

Definition of default
Residual risk
Concentration risk
Counterparty risk

Gross income as proxy

Market Risk

ee Elements (IRB)
isk Components
isk-weight functions
Minimum requirements

Equities

Banking Book

Currencies

Currencies

Commodities

Commodities

Qualitative disclosures

Capital adequacy

General qualitative disclosure

strategies & processes
organization of risk mgmt function
scope & nature of risk reporting & measurement
Policies for, and monitoring of, hedging & mitigation

Internal Models Approach (IMA)

Credit risk

Stress Testing

VaR

Green: <5

definitions of past due, impaired;

allowance approaches, policies

Additional requirement under IRB approaches

Market risk

Backtesting

10 day horizon
99% confidence
One year of data
Quarterly updating

Credit risk, equity in IRB, market

risk, operational risk, Total & Tier 1

Risk exposure and assessment

Standardized (sum the building blocks)

Qualitative Requirements

capital requirements for: interest rate

risk, equity position, FX and commodity

Operational Risk

exceptions

k+
Yellow: 5-9 0.4
Red: 10+
1.0

gain/loss from sale, req by group

Capital for UL only

EL with provisions

PD EAD LGD M

Different IRB Treatment

Retail

Equities

1. Residential Mortgage
2. Qualifying Revolving
3. Small Bus Loans

Purchased
Receivables

Mitigation (CRM)

Advanced IRB
Supervisor Supplied

Securitization

Simple

True-sale conditions:
1. risk to 3rd party
2. seller doesnt control
3. securities not obligations
4. SPE holder rights

Substitute
Collateral Risk Weight

Comprehensive
Reduce Exposure by Collateral (+ haircuts)

E* = (E + H) - (C - H - Hfx)

LGD

E*

Derivatives
Foundation
LGD

Advanced
LGD

ASA

Retail Volume

max
(
GI

),0
[
]

Comml Volume
lines 1 8
lines 1-8
i =last three years

=
3

Advanced Measurement
Approach (AMA)
Elements
Should Have
Controls
& Tools
Mitigation

Internal Measurement Approach (IMA)

(i,j) EI(i , j ) PE(i , j ) LGE(i , j )

Loss Distribution
Approach (LDA)

Correlations

Scorecard
Approach

Market
Risk

Scope
Trading Book
Equities

Banking Book

Currencies

Currencies

Commodities

Commodities

External Rating

Tranche

Standardized (sum the building blocks)

MRCtStandard = IR,EQ,FX ,CO,OP MRCt

IRB Approach

Collateral

i =last three years

(GIi )

Fixed-Income

Standardized

Senior: 45% LGD

Subord: 75% LGD

Elements
Must
Have
Internal External Scenario
Data
Data
Analysis

RWA=12.5 EAD K
K = LGD PD f(M)

Foundation

Basic Indicator Approach (BIA)

K SA

External
Ratings-based (RBA)

Supervisory
Formula (SF)
Internal Assessment
Approach (IAA)

Internal Models Approach (IMA)

Qualitative Requirements

VaR

10 day horizon
99% confidence
One year of data
Quarterly updating

description of approaches;
if AMA, factor and insurance

Banking book equities investment values, public/private,

Operational
Risk

K Operational ,BIA =

Quantitative disclosures
Tier 1 with breakdowns,
Tier 2 & 3, deductions, total eligible

Capital structure

Standardized Approach (SA)

Corporate, Sovereign
& Bank Exposures

Trading book eligibility

Valuation
IMA: Stress testing
IMA: Specific risk model

Trading Book

Internal Estimate

Foundation IRB

Third
Pillar

External Rating

$100 MM loan 20% (AAA) 8% capital = $1.6 MM

$100 MM loan 100% (BB-) 8% capital = $8.0 MM

Operational Risk

Market
Risk

Credit
Risk
Claim
Type

Good targets, processes

Captial adequacy
Control envirnonment
Min. standard compliance
Response (as needed)

4. Supervisor intervention

Banking book interest rate risk

Banking interest rate

Standardized

Specific Issues to be Addressed

Elements
Should Have

(i,j) EI(i , j ) PE(i , j ) LGE(i , j )

Loss Distribution
Approach (LDA)

2. Supervisor review

3. Supervisor response

Advanced Measurement
Approach (AMA)

MRCtStandard = IR,EQ,FX ,CO,OP MRCt

IRB Approach

Collateral

1. Rigorous bank process

External Rating

Reduce Exposure by Collateral (+ haircuts)

Senior: 45% LGD

Subord: 75% LGD

i =last three years

Key principles of supervisory review

(GIi )

Fixed-Income

Standardized

Foundation

K Operational ,BIA =

Internal Measurement Approach (IMA)

Different IRB Treatment

Retail

Basic Indicator Approach (BIA)

K SA

Corporate, Sovereign
& Bank Exposures

Second
Pillar

Stress Testing
Backtesting
Green: <5

exceptions

k+
Yellow: 5-9 0.4
Red: 10+
1.0

value change for rate shock,

broken down by currency

Total capital
8%
+ [MRCMarket 12.5]+[ORCOpr'l 12.5]

RWA Credit

Undisclosed reserves
Asset revaluation reserves
Tier 2
General provisions or
Supplementary
loan loss reserves
(only here in Tier 2)
Hybrid debt capital instruments
(Cumulative preferred stock)
Subordinated term debt

Tier 1 Equity capital: issued &

Core fully paid common stock
Non-cumulative, non-redeemable
preferred stock
Disclosed reserves
(Excludes Goodwill)

Credit Risk
Operational Risk
Market Risk
Tier 3
To meet market risk capital
requirements only
Short-term subordinated debt
Maturity at least 2 years
With covenant limiting payment
if impairs banks capital requirement

Credit
Risk

Operational
Risk
External Rating

Standardized
Claim
Type

$100 MM loan 20% (AAA) 8% capital = $1.6 MM

$100 MM loan 100% (BB-) 8% capital = $8.0 MM
Three Elements (IRB)
1. Risk Components
2. Risk-weight functions
3. Minimum requirements

Internal Estimate

Foundation IRB

PD EAD LGD M

Capital for UL only

EL with provisions
RWA=12.5 EAD K
K = LGD PD f(M)

1. Residential Mortgage
2. Qualifying Revolving
3. Small Bus Loans

Advanced IRB

Equities

Supervisor Supplied

Purchased
Receivables

Securitization

Mitigation (CRM)

Simple

True-sale conditions:
1. risk to 3rd party
2. seller doesnt control
3. securities not obligations
4. SPE holder rights

Substitute
Collateral Risk Weight

Comprehensive

Tranche

E* = (E + H) - (C - H - Hfx)

Derivatives

LGD

External
Ratings-based (RBA)

Foundation
LGD

E*

Standardized Approach (SA)

ASA

Retail Volume
max [ (GI lines 1 8 lines 1-8 ),0 ] Comml Volume

i =last three years

=
3

Elements
Must
Have
Internal External Scenario
Data
Data
Analysis

Supervisory
Formula (SF)

Advanced

Internal Assessment
Approach (IAA)

LGD

Board, Sr mgmt oversight

Capital assessment
Total risk assessment
Monitoring & reporting
Internal control review

Controls
& Tools
Mitigation

Correlations

Scorecard
Approach

Scope

Credit Risk

IRB stress tests

Definition of default
Residual risk
Concentration risk
Counterparty risk

Gross income as proxy

Market Risk

ee Elements (IRB)
isk Components
isk-weight functions
Minimum requirements

Equities

Banking Book

Currencies

Currencies

Commodities

Commodities

Qualitative disclosures

Capital adequacy

General qualitative disclosure

strategies & processes
organization of risk mgmt function
scope & nature of risk reporting & measurement
Policies for, and monitoring of, hedging & mitigation

Internal Models Approach (IMA)

Credit risk

Stress Testing

VaR

Green: <5

definitions of past due, impaired;

allowance approaches, policies

Additional requirement under IRB approaches

Market risk

Backtesting

10 day horizon
99% confidence
One year of data
Quarterly updating

Credit risk, equity in IRB, market

risk, operational risk, Total & Tier 1

Risk exposure and assessment

Standardized (sum the building blocks)

Qualitative Requirements

capital requirements for: interest rate

risk, equity position, FX and commodity

Operational Risk

exceptions

k+
Yellow: 5-9 0.4
Red: 10+
1.0

gain/loss from sale, req by group

Capital for UL only

EL with provisions

PD EAD LGD M

Different IRB Treatment

Retail

Equities

1. Residential Mortgage
2. Qualifying Revolving
3. Small Bus Loans

Purchased
Receivables

Mitigation (CRM)

Advanced IRB
Supervisor Supplied

Securitization

Simple

True-sale conditions:
1. risk to 3rd party
2. seller doesnt control
3. securities not obligations
4. SPE holder rights

Substitute
Collateral Risk Weight

Comprehensive
Reduce Exposure by Collateral (+ haircuts)

E* = (E + H) - (C - H - Hfx)

LGD

E*

Derivatives
Foundation
LGD

Advanced
LGD

ASA

Retail Volume

max
(
GI

),0
[
]

Comml Volume
lines 1 8
lines 1-8
i =last three years

=
3

Advanced Measurement
Approach (AMA)
Elements
Should Have
Controls
& Tools
Mitigation

Internal Measurement Approach (IMA)

(i,j) EI(i , j ) PE(i , j ) LGE(i , j )

Loss Distribution
Approach (LDA)

Correlations

Scorecard
Approach

Market
Risk

Scope
Trading Book
Equities

Banking Book

Currencies

Currencies

Commodities

Commodities

External Rating

Tranche

Standardized (sum the building blocks)

MRCtStandard = IR,EQ,FX ,CO,OP MRCt

IRB Approach

Collateral

i =last three years

(GIi )

Fixed-Income

Standardized

Senior: 45% LGD

Subord: 75% LGD

Elements
Must
Have
Internal External Scenario
Data
Data
Analysis

RWA=12.5 EAD K
K = LGD PD f(M)

Foundation

Basic Indicator Approach (BIA)

K SA

External
Ratings-based (RBA)

Supervisory
Formula (SF)
Internal Assessment
Approach (IAA)

Internal Models Approach (IMA)

Qualitative Requirements

VaR

10 day horizon
99% confidence
One year of data
Quarterly updating

description of approaches;
if AMA, factor and insurance

Banking book equities investment values, public/private,

Operational
Risk

K Operational ,BIA =

Quantitative disclosures
Tier 1 with breakdowns,
Tier 2 & 3, deductions, total eligible

Capital structure

Standardized Approach (SA)

Corporate, Sovereign
& Bank Exposures

Trading book eligibility

Valuation
IMA: Stress testing
IMA: Specific risk model

Trading Book

Internal Estimate

Foundation IRB

Third
Pillar

External Rating

$100 MM loan 20% (AAA) 8% capital = $1.6 MM

$100 MM loan 100% (BB-) 8% capital = $8.0 MM

Operational Risk

Market
Risk

Credit
Risk
Claim
Type

Good targets, processes

Captial adequacy
Control envirnonment
Min. standard compliance
Response (as needed)

4. Supervisor intervention

Banking book interest rate risk

Banking interest rate

Standardized

Specific Issues to be Addressed

Elements
Should Have

(i,j) EI(i , j ) PE(i , j ) LGE(i , j )

Loss Distribution
Approach (LDA)

2. Supervisor review

3. Supervisor response

Advanced Measurement
Approach (AMA)

MRCtStandard = IR,EQ,FX ,CO,OP MRCt

IRB Approach

Collateral

1. Rigorous bank process

External Rating

Reduce Exposure by Collateral (+ haircuts)

Senior: 45% LGD

Subord: 75% LGD

i =last three years

Key principles of supervisory review

(GIi )

Fixed-Income

Standardized

Foundation

K Operational ,BIA =

Internal Measurement Approach (IMA)

Different IRB Treatment

Retail

Basic Indicator Approach (BIA)

K SA

Corporate, Sovereign
& Bank Exposures

Second
Pillar

Stress Testing
Backtesting
Green: <5

exceptions

k+
Yellow: 5-9 0.4
Red: 10+
1.0

value change for rate shock,

broken down by currency

RWA Credit

Total capital
8%
+ [MRCMarket 12.5]+[ORCOpr'l 12.5]

Undisclosed reserves
Asset revaluation reserves
Tier 2
General provisions or
Supplementary
loan loss reserves
(only here in Tier 2)
Hybrid debt capital instruments
(Cumulative preferred stock)
Subordinated term debt

Tier 1 Equity capital: issued &

Core fully paid common stock
Non-cumulative, non-redeemable
preferred stock
Disclosed reserves
(Excludes Goodwill)

Credit Risk
Operational Risk
Market Risk
Tier 3
To meet market risk capital
requirements only
Short-term subordinated debt
Maturity at least 2 years
With covenant limiting payment
if impairs banks capital requirement

Credit
Risk

Operational
Risk
External Rating

Standardized
Claim
Type

$100 MM loan 20% (AAA) 8% capital = $1.6 MM

$100 MM loan 100% (BB-) 8% capital = $8.0 MM
Three Elements (IRB)
1. Risk Components
2. Risk-weight functions
3. Minimum requirements

Internal Estimate

Foundation IRB

PD EAD LGD M

Capital for UL only

EL with provisions
RWA=12.5 EAD K
K = LGD PD f(M)

1. Residential Mortgage
2. Qualifying Revolving
3. Small Bus Loans

Equities
Purchased
Receivables

Mitigation (CRM)

Advanced IRB
Supervisor Supplied

Securitization

Simple

True-sale conditions:
1. risk to 3rd party
2. seller doesnt control
3. securities not obligations
4. SPE holder rights

Substitute
Collateral Risk Weight

Comprehensive
Reduce Exposure by Collateral (+ haircuts)

E* = (E + H) - (C - H - Hfx)

Collateral

LGD

E*

1. Rigorous bank process

Standardized Approach (SA)

Derivatives
Foundation
LGD

Advanced
LGD

ASA

Retail Volume
max [ (GI lines 1 8 lines 1-8 ),0 ] Comml Volume

i =last three years

=
3

Elements
Must
Have
Internal External Scenario
Data
Data
Analysis

Elements
Should Have
Controls
& Tools
Mitigation

(i,j) EI(i , j ) PE(i , j ) LGE(i , j )

Loss Distribution
Approach (LDA)

Scorecard
Approach

Tranche

Correlations

Supervisory
Formula (SF)
Internal Assessment
Approach (IAA)

Board, Sr mgmt oversight

Capital assessment
Total risk assessment
Monitoring & reporting
Internal control review

Good targets, processes

Captial adequacy
Control envirnonment
Min. standard compliance
Response (as needed)

4. Supervisor intervention

Specific Issues to be Addressed

Banking book interest rate risk

Operational Risk

Credit Risk

IRB stress tests

Definition of default
Residual risk
Concentration risk
Counterparty risk

Gross income as proxy

Market Risk

Trading book eligibility

Valuation
IMA: Stress testing
IMA: Specific risk model

Market
Risk

Scope

Third
Pillar

Trading Book
Equities

Banking Book

Currencies

Currencies

Commodities

Commodities

Standardized (sum the building blocks)

MRCtStandard = IR,EQ,FX ,CO,OP MRCt

External
Ratings-based (RBA)

2. Supervisor review

3. Supervisor response

Advanced Measurement
Approach (AMA)

External Rating

IRB Approach
Senior: 45% LGD
Subord: 75% LGD

i =last three years

Key principles of supervisory review

(GIi )

Fixed-Income

Standardized

Foundation

K Operational ,BIA =

Internal Measurement Approach (IMA)

Different IRB Treatment

Retail

Basic Indicator Approach (BIA)

K SA

Corporate, Sovereign
& Bank Exposures

Second
Pillar

Internal Models Approach (IMA)

Qualitative Requirements

VaR

10 day horizon
99% confidence
One year of data
Quarterly updating

Stress Testing
Backtesting
Green: <5

exceptions

k+
Yellow: 5-9 0.4
Red: 10+
1.0

Qualitative disclosures

Quantitative disclosures
Tier 1 with breakdowns,
Tier 2 & 3, deductions, total eligible

Capital structure
Capital adequacy

Credit risk, equity in IRB, market

risk, operational risk, Total & Tier 1

Risk exposure and assessment

General qualitative disclosure
strategies & processes
organization of risk mgmt function
scope & nature of risk reporting & measurement
Policies for, and monitoring of, hedging & mitigation

Credit risk

definitions of past due, impaired;

allowance approaches, policies

Additional requirement under IRB approaches

Market risk

capital requirements for: interest rate

risk, equity position, FX and commodity

Operational Risk

description of approaches;
if AMA, factor and insurance

Banking book equities investment values, public/private,

gain/loss from sale, req by group

Banking interest rate

value change for rate shock,

Total capital
8%
+ [MRCMarket 12.5]+[ORCOpr'l 12.5]

RWA Credit

Undisclosed reserves
Asset revaluation reserves
Tier 2
General provisions or
Supplementary
loan loss reserves
(only here in Tier 2)
Hybrid debt capital instruments
(Cumulative preferred stock)
Subordinated term debt

Tier 1 Equity capital: issued &

Core fully paid common stock
Non-cumulative, non-redeemable
preferred stock
Disclosed reserves
(Excludes Goodwill)

Credit Risk
Operational Risk
Market Risk
Tier 3
To meet market risk capital
requirements only
Short-term subordinated debt
Maturity at least 2 years
With covenant limiting payment
if impairs banks capital requirement

Credit
Risk

Operational
Risk
External Rating

Standardized
Claim
Type

$100 MM loan 20% (AAA) 8% capital = $1.6 MM

$100 MM loan 100% (BB-) 8% capital = $8.0 MM
Three Elements (IRB)
1. Risk Components
2. Risk-weight functions
3. Minimum requirements

Internal Estimate

Foundation IRB

PD EAD LGD M

Capital for UL only

EL with provisions
RWA=12.5 EAD K
K = LGD PD f(M)

1. Residential Mortgage
2. Qualifying Revolving
3. Small Bus Loans

Advanced IRB

Equities

Supervisor Supplied

Purchased
Receivables

Securitization

Mitigation (CRM)

Simple

True-sale conditions:
1. risk to 3rd party
2. seller doesnt control
3. securities not obligations
4. SPE holder rights

Substitute
Collateral Risk Weight

Comprehensive

Tranche

E* = (E + H) - (C - H - Hfx)

Derivatives

LGD

External
Ratings-based (RBA)

Foundation
LGD

E*

Standardized Approach (SA)

ASA

Retail Volume
max [ (GI lines 1 8 lines 1-8 ),0 ] Comml Volume

i =last three years

=
3

Elements
Must
Have
Internal External Scenario
Data
Data
Analysis

Supervisory
Formula (SF)

Advanced

Internal Assessment
Approach (IAA)

LGD

Board, Sr mgmt oversight

Capital assessment
Total risk assessment
Monitoring & reporting
Internal control review

Controls
& Tools
Mitigation

Correlations

Scorecard
Approach

Scope

Credit Risk

IRB stress tests

Definition of default
Residual risk
Concentration risk
Counterparty risk

Gross income as proxy

Market Risk

ee Elements (IRB)
isk Components
isk-weight functions
Minimum requirements

Equities

Banking Book

Currencies

Currencies

Commodities

Commodities

Qualitative disclosures

Capital adequacy

General qualitative disclosure

strategies & processes
organization of risk mgmt function
scope & nature of risk reporting & measurement
Policies for, and monitoring of, hedging & mitigation

Internal Models Approach (IMA)

Credit risk

Stress Testing

VaR

Green: <5

definitions of past due, impaired;

allowance approaches, policies

Additional requirement under IRB approaches

Market risk

Backtesting

10 day horizon
99% confidence
One year of data
Quarterly updating

Credit risk, equity in IRB, market

risk, operational risk, Total & Tier 1

Risk exposure and assessment

Standardized (sum the building blocks)

Qualitative Requirements

capital requirements for: interest rate

risk, equity position, FX and commodity

Operational Risk

exceptions

k+
Yellow: 5-9 0.4
Red: 10+
1.0

gain/loss from sale, req by group

Capital for UL only

EL with provisions

PD EAD LGD M

Different IRB Treatment

Retail

Equities

1. Residential Mortgage
2. Qualifying Revolving
3. Small Bus Loans

Purchased
Receivables

Mitigation (CRM)

Advanced IRB
Supervisor Supplied

Securitization

Simple

True-sale conditions:
1. risk to 3rd party
2. seller doesnt control
3. securities not obligations
4. SPE holder rights

Substitute
Collateral Risk Weight

Comprehensive
Reduce Exposure by Collateral (+ haircuts)

E* = (E + H) - (C - H - Hfx)

LGD

E*

Derivatives
Foundation
LGD

Advanced
LGD

ASA

Retail Volume

max
(
GI

),0
[
]

Comml Volume
lines 1 8
lines 1-8
i =last three years

=
3

Advanced Measurement
Approach (AMA)
Elements
Should Have
Controls
& Tools
Mitigation

Internal Measurement Approach (IMA)

(i,j) EI(i , j ) PE(i , j ) LGE(i , j )

Loss Distribution
Approach (LDA)

Correlations

Scorecard
Approach

Market
Risk

Scope
Trading Book
Equities

Banking Book

Currencies

Currencies

Commodities

Commodities

External Rating

Tranche

Standardized (sum the building blocks)

MRCtStandard = IR,EQ,FX ,CO,OP MRCt

IRB Approach

Collateral

i =last three years

(GIi )

Fixed-Income

Standardized

Senior: 45% LGD

Subord: 75% LGD

Elements
Must
Have
Internal External Scenario
Data
Data
Analysis

RWA=12.5 EAD K
K = LGD PD f(M)

Foundation

Basic Indicator Approach (BIA)

K SA

External
Ratings-based (RBA)

Supervisory
Formula (SF)
Internal Assessment
Approach (IAA)

Internal Models Approach (IMA)

Qualitative Requirements

VaR

10 day horizon
99% confidence
One year of data
Quarterly updating

description of approaches;
if AMA, factor and insurance

Banking book equities investment values, public/private,

Operational
Risk

K Operational ,BIA =

Quantitative disclosures
Tier 1 with breakdowns,
Tier 2 & 3, deductions, total eligible

Capital structure

Standardized Approach (SA)

Corporate, Sovereign
& Bank Exposures

Trading book eligibility

Valuation
IMA: Stress testing
IMA: Specific risk model

Trading Book

Internal Estimate

Foundation IRB

Third
Pillar

External Rating

$100 MM loan 20% (AAA) 8% capital = $1.6 MM

$100 MM loan 100% (BB-) 8% capital = $8.0 MM

Operational Risk

Market
Risk

Credit
Risk
Claim
Type

Good targets, processes

Captial adequacy
Control envirnonment
Min. standard compliance
Response (as needed)

4. Supervisor intervention

Banking book interest rate risk

Banking interest rate

Standardized

Specific Issues to be Addressed

Elements
Should Have

(i,j) EI(i , j ) PE(i , j ) LGE(i , j )

Loss Distribution
Approach (LDA)

2. Supervisor review

3. Supervisor response

Advanced Measurement
Approach (AMA)

MRCtStandard = IR,EQ,FX ,CO,OP MRCt

IRB Approach

Collateral

1. Rigorous bank process

External Rating

Reduce Exposure by Collateral (+ haircuts)

Senior: 45% LGD

Subord: 75% LGD

i =last three years

Key principles of supervisory review

(GIi )

Fixed-Income

Standardized

Foundation

K Operational ,BIA =

Internal Measurement Approach (IMA)

Different IRB Treatment

Retail

Basic Indicator Approach (BIA)

K SA

Corporate, Sovereign
& Bank Exposures

Second
Pillar

Stress Testing
Backtesting
Green: <5

exceptions

k+
Yellow: 5-9 0.4
Red: 10+
1.0

value change for rate shock,

broken down by currency