A large commercial bank operating in the international markets will generally apply to the banks' supervisor to use the _____ to credit risk.

Question

Quizplus · Accepted Answer

A large commercial bank operating in international markets is likely to have a complex and diverse portfolio of credit risks. Therefore, it is likely to have more accurate and reliable internal credit risk rating models that reflect the nuances of its business. A bank can apply to use the advanced internal ratings-based approach (A-IRB) to credit risk if it can demonstrate to the banking supervisor that it has the necessary expertise, systems, and controls to calculate regulatory capital requirements based on the bank's own internal credit risk models. The A-IRB approach allows banks to use their own estimates of key inputs such as probability of default, loss given default, and exposure at default, as well as to reflect the impact of diversification and portfolio effects. The other approaches listed (B, C, and D) are less flexible and less risk-sensitive than the A-IRB approach.

A Large Commercial Bank Operating in the International Markets Will