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GHADEER OBEIDAT
Basel II
2
banks
Small regional banks required to implement Basel
1A (similar to Basel I), rather than Basel II
European Union requires Basel II to be implemented
by securities companies as well as all banks
Approach
3. The Advanced IRB Approach
Example (1)
9
collateral:
1. Simple Approach
2. Comprehensive Approach
Simple Approach
11
Example(2)
12
Comprehensive Approach
13
17
EAD x LGD x PD
Therefore the capital required is the excess of the
99.9% worst-case loss over the expected loss;
EAD x LGD x ( WCDR PD )
Dependence of on PD
20
1 e 50 PD
1 e 50 PD
50 PD
0.12
0
.
24
0
.
12
[
1
e
]
50
50
1 e
1 e
Capital Requirements
21
Example (3)
22
Retail Exposures
23
1 e 35PD
1 e 35PD
0.03
0.16 1
35
1 e
1 e 35
0.03 0.13e - 35 PD
There is no distinction between Foundation and Advanced IRB approaches.
Banks estimate PD, LGD, and EAD in both cases
Guarantees
24
operational risk:
1. The Basic Indicator Approach
2. The Standardized Approach
3. The Advanced Measurement Approach
Solvency II
28
31
32