<h3 style="text-align: center;">What is the Basel Committee for Banking Supervision?</h3>
The Basel Committee on Banking Supervision is a committee of banking supervisory authorities, which was established by the central bank governors of the Group of Ten (G10) countries in 1975. It consists of senior representatives of bank supervisory authorities and central banks from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States.

The committee is one of several committees set up under the auspices of the Bank for International Settlements (BIS). The Basel Committee meets regularly four times a year. It has about thirty technical working groups and task forces, which also meet regularly. The ten countries are each represented by their central bank and also by the authority with formal responsibility for the prudential supervision of banking business where this is not the central bank.



The Committee does not possess any formal supranational supervisory authority, and its conclusions do not have legal force. Rather, it formulates broad supervisory standards and guidelines and recommends statements of best practice in the expectation that individual authorities will take steps to implement them through detailed arrangements that are best suited to their own national systems.
<h3>What is the Basel Capital Accord?</h3>
Published by the Basel Committee on Banking Supervision in 1988, the Basel Capital Accord sets down the agreement among the G10 central banks to apply common minimum capital standards to their banking industries, to be achieved by end-year 1992. The objective was to introduce international convergence of capital measurement and capital standards. The standards are almost entirely addressed to credit risk, the main risk incurred by banks (The new capital accord includes credit, market, as well as operational risk).

In recent years, the Basel Accord has gone through various amendments. The original accord published in 1988 is commonly known as Basel I, and the new capital accord published in 2004 is commonly known as Basel II.

In the coming posts we will provide an overview of Basel I, and it’s shortcomings. We will then discuss in details the various provisions of Basel II.

Introduction to Basel Capital Accord

The 1988 Basel Accord, also known as Basel I, established minimum capital standards for the banking industry by linking the banks’ capital requirements to their capital exposures. Basel I primarily focused on credit risk.

The credit exposures were divided into five categories that represented similar types of borrowers. Each category is tied to a specific risk weight, which is used to calculate the total capital requirements

Five risk categories encompass all assets on a bank’s balance sheet. These categories and their risk weights are described below:
<table>
<tbody>
<tr>
<td width="295" valign="top"><strong>Risk   weight</strong></td>
<td width="295" valign="top"><strong>Asset   Category</strong></td>
</tr>
<tr>
<td width="295" valign="top">0%</td>
<td width="295" valign="top">Cash   and gold bullion, claims on OECD governments such as Treasury bonds, or   insured residential mortgages</td>
</tr>
<tr>
<td width="295" valign="top">20%</td>
<td width="295" valign="top">Claims   on OECD banks and OECD public sector entities such as securities issued by U.S. government agencies or   claims on municipalities.</td>
</tr>
<tr>
<td width="295" valign="top">50%</td>
<td width="295" valign="top">Uninsured   residential mortgages</td>
</tr>
<tr>
<td width="295" valign="top">100%</td>
<td width="295" valign="top">All   other claims, such as corporate bonds and less-developed country debt, claims   on non-OECD banks, equity, real estate, premises, plant and equipment.</td>
</tr>
<tr>
<td width="295" valign="top">Variable</td>
<td width="295" valign="top">Claims   on domestic public sector entities, which can be valued at 0, 10, 20, or 50%   depending on the central bank’s discretion.</td>
</tr>
</tbody>
</table>
As an example, an uninsured residential mortgage of $10,000 will carry a risk weight of 50%. So, the risk weighted assets will be $10,000*50%, i.e., $5,000.

As per Basel I, banks with international presence are required to hold capital equal to 8% of the risk-weighted assets. This is also known as the Target Standard Ratio. It sets a universal standard whereby 8% of a bank’s risk-weighted assets must be covered by Tier 1 and Tier 2 capital reserves. Moreover, Tier 1 capital must cover 4% of a bank’s risk-weighted assets. This ratio is seen as “minimally adequate” to protect against credit risk in deposit insurance-backed international banks in all Basel Committee member states.

The capital requirements could be calculated using the following formula:

Capital ratio (min 8%) = Total Capital/Risk-weighted assets

In our example above, the minimum required capital will be 8% of $5,000, i.e. $400.

The 1988 Basel Accord (Basel I)

<p class="MsoNormal">In 1996, Basel Committee on Banking Supervision (BCBS) published an amendment to the 1988 Basel Accord to provide an explicit capital cushion for the price risks to which banks are exposed, particularly those arising from their trading activities. This amendment was brought into effect in 1998.</p>
<p class="MsoNormal">Salient features of the amendment are given below: </p>

<ol style="margin-top: 0in;" type="1">
	<li class="MsoNormal">Allows      banks to use proprietary in-house models for measuring market risks</li>
	<li class="MsoNormal">Banks      using proprietary models must compute VaR daily, using 99<sup>th</sup> percentile, one-tailed confidence interval with a time horizon of ten      trading days using a historical observation period of at least one year.</li>
	<li class="MsoNormal">The      capital charge for a bank that uses a proprietary model will be the higher      of the previous day’s VaR and three times the average of the daily VaR of      the preceding sixty business days.</li>
	<li class="MsoNormal">Use of      ‘back testing’ (ex-post comparisons between model results and actual      performance) to arrive at the ‘plus factor’ that is added to the multiplication      factor of three.</li>
	<li class="MsoNormal">Allows      banks to issue short-term subordinated debt subject to a lock-in clause      (Tier 3 capital) to meet a part of their market risks.</li>
	<li class="MsoNormal">Alternate      standardized approach using the ‘building block’ approach where general      market risk and specific security risk are calculated separately and added      up.</li>
	<li class="MsoNormal">Banks      to segregate trading book and mark to market all portfolio/position in the      trading book.</li>
	<li class="MsoNormal">Applicable      to both trading activities of banks and non-banking securities firms.</li>
</ol>
<p class="MsoNormal"></p>
<p class="MsoNormal">Originally released in January 1996 and modified in September 1997, the Amendment was further revised on 14 November 2005 to incorporate the Basel Committee's 18 July 2005 paper, The application of Basel II to trading activities and the treatment of double default effects, solely as a matter of convenience to readers.</p>

<h3>Downloads</h3>

<a href="https://financetrain.com/wp-content/uploads/Market-Risk-Amendment-Nov-2005.pdf">Amendment to the capital accord to incorporate market risks</a> - This document, commonly referred to as the Market Risk Amendment, represents the main section of a three-part package of documents issued by the Basel Committee to amend the Capital Accord of July 1988 to take account of and set capital requirements for market risks. It describes two alternative approaches to the measurement of market risk, a standardised method and an internal models approach, closing with a number of worked examples. The other papers in the three-part package are an overview of the market risk amendment and a technical paper on the backtesting of models.Originally released in January 1996 and modified in September 1997, the Amendment was further revised on 14 November 2005 to incorporate the Basel Committee's 18 July 2005 paper, <a href="https://financetrain.com/wp-content/uploads/The-Application-of-Basel-II-to-Trading-Activities-and-the-Treatment-of-Double-Default-Effects.pdf">The application of Basel II to trading activities and the treatment of double default effects</a>, solely as a matter of convenience to readers.

Basel Accord – 1996 Market Risk Amendment

<p class="MsoNormal">The rules of the original 1988 Accord are generally acknowledged to be flawed for various reasons, discussed below:</p>
<p class="MsoNormal"></p>

<ul style="margin-top: 0in;" type="disc">
	<li class="MsoNormal">Credit      risk assessment under Basel I is not risk-sensitive enough. Capital need      assessment under Basel I accord was not being able to differentiate      between banks with lower risks and banks with higher risks. For example,      exposure on a company with AAA rating and a company with B rating are      treated identically for the purpose of capital adequacy. Both will be      placed in 100% risk weight category, although risks associated with them      would be quite different.</li>
</ul>

<ul style="margin-top: 0in;" type="disc">
	<li class="MsoNormal">It      promotes financial decision-making on the basis of regulatory constraints      rather than on the basis of economic opportunities. Capital requirement      for all corporate accounts being the same, it encouraged financing of      assets with more risk for higher returns. Whereas a sound decision should      take into account risk and return characteristics of an asset, it was      discouraged, as capital requirements were not differentiated based on risk      characteristics of assets.</li>
</ul>
<ul style="margin-top: 0in;" type="disc">
	<li class="MsoNormal">It did      not recognize the role of credit risk mitigants, such as credit      derivatives, securitizations, collaterals and guarantees, in reducing      credit risk.</li>
</ul>
<ul style="margin-top: 0in;" type="disc">
	<li class="MsoNormal">The      accord does not appropriately take maturity factors into effect. For      example, revolving credit arrangements with a term of less than one year      do not require any regulatory capital while a short-term, facility with      366 days to maturity bears the same capital charge as any long-term facility.</li>
</ul>
<ul style="margin-top: 0in;" type="disc">
	<li class="MsoNormal">Lastly,      the Accord does not address complex issues such as portfolio effects, even      though credit risk in any large portfolio is bound to be partially offset      by diversification.</li>
</ul>
<p class="MsoNormal"></p>
<p class="MsoNormal">These shortcomings would lead to a distorted assessment of risk and capital, and therefore, in 1996, the Basel Committee declared its intentions to build a new capital adequacy framework, known as Basel II.</p>
<p class="MsoNormal"></p>
<p class="MsoNormal">The fundamental objectives to revise the 1988 Accord have been:</p>
<p class="MsoNormal"></p>

<ul style="margin-top: 0in;" type="disc">
	<li class="MsoNormal">To      develop a framework that would strengthen the soundness and stability of      the international banking system</li>
</ul>
<ul style="margin-top: 0in;" type="disc">
	<li class="MsoNormal">To      ensure that it does not become a source of competitive inequality among      internationally active banks and yet have a capital adequacy regulation      that is sufficiently consistent</li>
</ul>
<ul style="margin-top: 0in;" type="disc">
	<li class="MsoNormal">To      help promote the adoption of stronger risk management practices by the      banking industry.</li>
</ul>
<p class="MsoNormal"></p>
<p class="MsoNormal">Basel II was released on June 26, 2004.</p>

Why Basel I (1988 Accord) Needed to be Replaced?

The Basel Committee on Banking Supervision (BCBS) released the revised capital accord, also called, Basel II, on June 26, 2004. The document is called “International Convergence of Capital Measurement and Capital Standards: A Revised Framework”.

The significant features of Basel II are:


<ul>
	<li>Significantly      more risk sensitive capital requirements and takes into account      operational risk of banks apart from credit and market risks. It also      provides for risk treatment based on securitization.</li>
</ul>
<ul>
	<li>Great      use of assessment of risk provided by banks’ internal systems as inputs to      capital calculations.</li>
</ul>
<ul>
	<li>Provides      a range of options for determining the capital requirements for credit      risk and operational risk to allow banks and national regulators to select      the approaches that are most suitable for them.</li>
</ul>
<ul>
	<li>Capital      requirement under the new accord is the minimum. It has a provision for      supplementary capital that can be adopted by national regulators.</li>
</ul>
<ul>
	<li>The      Accord promotes strong risk management practices by providing capital      incentives for banks having better risk management practices.</li>
</ul>
One most note that the capital requirements under basel II do not include liquidity risk, interest rate risk of banking book, strategic risk, and business risk. These risks would fall under “Supervisory Review Process”. If supervisors feel that the capital held by a bank is not sufficient, they could require the bank to reduce its risk or increase its capital or both. With respect to interest rate risk on banking book, the Accord puts in place a criteria for “Outliers”. Where a bank under 200 basis points interest rate shock faces reduction in capital by 20% or more, such banks would be outliers.

The Basel Accord is based on three pillars:
<ol>
	<li>Minimum      Capital Requirements</li>
	<li>Supervisory      Review Process</li>
	<li>Market      Discipline</li>
</ol>
<strong>Pillar I – Minimum Capital Requirements</strong>

Pillar I provides details of how banks must calculate their minimum capital requirements. It suggests various approaches for calculating capital for credit, market, and operational risk.

Capital      for Credit Risk
<ul>
	<li>Standardized Approach</li>
	<li>Internal Ratings Based (IRB) Foundation Approach</li>
	<li>Internal Ratings Based (IRB) Advanced Approach</li>
</ul>
Capital      for Market Risk
<ul>
	<li>Standardized Approach (Maturity Method)</li>
	<li>Standardized Approach (Duration Method)</li>
	<li>Internal Models Method</li>
</ul>
Capital      for Operational Risk
<ul>
	<li>Basic Indicator Approach</li>
	<li>Standardized Approach</li>
	<li>Advanced Measurement Approach</li>
</ul>
<strong>Pillar 2 – Supervisory Review Process</strong>

The Pillar II concerns the supervisory approach to bank capital management. The objective here is to ensure that banks follow rigorous procedures, measure their risk exposures correctly, and have enough capital to cover their risks.
<ul>
	<li>Evaluate      risk assessment</li>
	<li>Ensure      soundness and integrity of bank’ internal process to assess the adequacy      of capital</li>
	<li>Ensure      maintenance of minimum capital – with PCA for shortfall</li>
	<li>Prescribe      differential capital, where necessary, i.e., where the internal processes      are slack.</li>
</ul>
<strong>Pillar 3 – Market Discipline</strong>

Pillar III introduces requirements for banks to disclose their risk information to the financial markets, in the hope that investors will be better able to exert discipline on bank behavior.
<ul>
	<li>Enhance      Disclosure</li>
	<li>Core      disclosures and supplementary disclosures</li>
	<li>Timely      – semi annual</li>
</ul>

Overview of Basel II Accord

Credit risk is defined as the possibility of losses associated with reduction of credit quality of borrowers or counterparties. In a bank’s portfolio, losses arise from outright default due to inability or unwillingness of a customer or counterparty to meet commitments in relation to lending, trading settlements, or any other financial transaction. Alternatively, losses occur from reduction in portfolio value due to deterioration in credit quality.

Under Basel I framework, assets were assigned uniform risk weights based on their category. For example, exposures to sovereigns were assigned a risk weight of 0%. Claims against banks were given a risk weight of 20%. Advances to corporates, individuals and firms were assigned 100% risk weight. The rating or health of the counterparty was not taken into account. Exposures to some of the banks can be riskier than exposures to some of the corporates. However, all banks enjoyed the risk weight of 20% and all corporates had a 100% risk weight.

This situation was corrected under Basel II. Under the revised accord, along with the category of a customer, his credit rating is given due importance.

Banks are permitted a choice between two broad methodologies for calculating their capital requirements for credit risk. These are:

<strong>Standardized Approach</strong>

Under this approach, credit risk is measured in a standardized manner based on external credit rating assessment.

<strong>Internal rating Based (IRB Approach)</strong>

Under this approach, banks are allowed to use their internal rating system for credit risk. This will be subject to the explicit approval of the bank’s supervisor. This approach has two options:
<ol>
	<li>Foundation      IRB Approach</li>
	<li>Advanced      IRB Approach</li>
</ol>
In the coming posts, we will discuss each of the above methods in detail.

Basel II – Capital Charge for Credit Risk

This approach allows banks to measure credit risk in a standardized manner based on external credit assessments. Rating agencies try to capture risk sensitivity using ratings. The risk weights are inversely related to the rating of the counter party. A higher rating indicates lower risk. National supervisors ensure the External Credit Assessment Institution (ECAI) meet the criteria set. The criteria are:
<ol>
	<li>Objectivity</li>
	<li>Independence</li>
	<li>International      Access</li>
	<li>Transparency</li>
	<li>Disclosures</li>
	<li>Resources</li>
	<li>Credibility</li>
</ol>
To credit rate sovereigns the country scores of Export Credit Agency are recognized.

In the case of commercial agencies two options are available. All banks under a certain country are designated a risk weight one notch below the risk weight assigned to it’s sovereign. But for countries with a credit rating of BB+ OR B- and banks of unrated countries the weights are given at 100%.

Alternatively an external credit assessment by the bank is used for its risk weights. In this case unrated banks have a risk weight of 50%.

The claims of sovereigns and their central banks are assigned risk weights as follows:
<table border="1" cellspacing="0" cellpadding="0">
<tbody>
<tr>
<td width="197" valign="top">Credit Rating of Sovereigns</td>
<td width="197" valign="top">Risk Weight of Sovereigns</td>
<td width="197" valign="top">Risk Weight for banks in that country</td>
</tr>
<tr>
<td width="197" valign="top">AAA to AA-

A+ to  A-

BBB+ to BBB-

BB+ to B-

Below B-

Unrated</td>
<td width="197" valign="top">0%

20%

50%

100%

150%

100%</td>
<td width="197" valign="top">20%

50%

100%

100%

150%

100%</td>
</tr>
</tbody>
</table>
Keeping in line with inverse risk weights and risk ratings, you will observe that weaker sovereigns or banks have risk weights far above 20%. This is unlike the earlier Basel I Accord where all sovereigns enjoyed a risk weight of 0% and banks had a uniform risk weights 20%.

In the case of corporates, claims have risk weights based on credit ratings similar to the ones given to banks in the table. The risk weights for unwanted claims are 100% .Unrated corporates cannot have risk weights lower than their sovereigns of incorporation. The supervisor should increase the standard risk weight of unrated claims when they judge that a higher risk is warranted based on default experience.

The standardized approach gives a risk weight of 75% to retail and SME exposures. The four eligibility criteria for inclusion in to the retail category are:
<ol>
	<li>Exposure      is to an individual person or persons or to a small business.</li>
	<li>Exposure      is the form of revolving credit, personal term loans, small business      facilities. Securities, bonds and equities are specifically excluded.</li>
	<li>The      portfolio must be sufficiently diversified-this is called Granularity      criterion. One may set a numerical limit that no aggregate exposure to one      counterpart can exceed 0.2% of the overall retail portfolio</li>
	<li>Low      value of individual exposures. The maximum aggregated retail exposure to      a     single counterparty cannot      exceed an absolute threshold of Euro 1 million.</li>
</ol>
In the case of lending fully secured by mortgage on residential property, the lending will have a risk weight of 35%. Thus all housing loan property may qualify for a risk weight of 35%. A fully secured loan on commercial property has a risk weight of 100%.

Past due loans attract a risk weight of 150% when specific provisions are less than 20% of the loan amount. In the case of higher provisioning the risk weight would be 100%.

Past due housing loans attract a risk weight of 100%, if the provisioning is below 20%. When higher provisioning is available the risk weight would be 50%.

In case of off-balance sheet items, credit conversion factor (CCF) is used like the ones in the Basel I accord.

A bank is allowed netting of the security from the outstanding exposure provided it has the right to liquidate the security promptly in the event of default. Thus liquid securities, such as, cash margins, term deposits, assigned insurance policies, duly pledged/transferred shares, debentures, bonds etc could be available for netting to the extent of reusable value provided the security can be promptly liquidated.

In cases where the claim amount is guaranteed by another party or agency, which has better rating, the risk weight would reduce correspondingly. For example, if unrated exposure is guaranteed by AA corporate, the risk weight will be 20%, corresponding to the AA rating.

Basel II - Standardised Approach for Credit Risk

This approach involves assigning risk weights based on the internal rating of the borrowers. The ratings exercise must fulfill certain criteria to the satisfaction of the regulator. There are two options available. They are Foundation approach and Advanced Approach.

In the IRB approaches, the bank’s internal assessment of key risk parameters serves as the primary input to capital computation. The key features of this approach are:
<ul>
	<li>Capital      charge computation is dependent on probability of default (PD), Loss given      at default (LGD), exposure at default (ED) and effective maturity (M).</li>
</ul>
<ul>
	<li>The      IRB approach computes the capital requirement of each exposure directly.</li>
</ul>
<ul>
	<li>Banks      need to categorize banking book      exposures into broad classes of assets. The classes of assets are      corporates, sovereigns, banks, retail and equity. Within corporates and      retail, there are sub-clauses, which are separately identified.</li>
</ul>
<ul>
	<li>Risk      weighted assets are derived from the capital charge computation. Banks      must use the risk weight functions provided by Basel II.</li>
</ul>
<ul>
	<li>IRB      approach does not allow banks to determine all elements.</li>
</ul>
<ul>
	<li>Foundation      and Advanced approaches differ primarily in terms of the inputs that are      provided by the bank on its own estimates and those that are specified by      the supervisor.</li>
</ul>
<ul>
	<li>Under      the Foundation approach, as a general rule, banks provide their own      estimates of PD – probability of default and rely on supervisory estimates      for other risk components.</li>
</ul>
<ul>
	<li>Under      the advanced approach, banks provide more of their own estimates of PD,      LGD, EAD and M.</li>
</ul>
<ul>
	<li>Banks      adopting IRB approach are expected to continue to use the same. A      voluntary return to earlier or lower approach is permitted only in      exceptional cases with prior permission from the supervisor.</li>
</ul>
The four input parameters for IRB approaches are summarized below:
<table border="1" cellspacing="0" cellpadding="0">
<tbody>
<tr>
<td></td>
<td width="197" valign="top"><strong>Input Parameter</strong></td>
<td width="197" valign="top"><strong>Foundation IRB</strong></td>
<td width="197" valign="top"><strong>Advanced IRB</strong></td>
</tr>
<tr>
<td></td>
<td width="197" valign="top">Probability of default (PD)</td>
<td width="197" valign="top">Provided by bank based on own estimates</td>
<td width="197" valign="top">Provided by bank based on own estimates</td>
</tr>
<tr>
<td></td>
<td width="197" valign="top">Loss given default (LGD)</td>
<td width="197" valign="top">Supervisory values set by the Committee</td>
<td width="197" valign="top">Provided by bank based on own estimates</td>
</tr>
<tr>
<td></td>
<td width="197" valign="top">Exposure at default (EAD)</td>
<td width="197" valign="top">Supervisory values set by the Committee</td>
<td width="197" valign="top">Provided by bank based on own estimates</td>
</tr>
<tr>
<td></td>
<td width="197" valign="top">Maturity</td>
<td width="197" valign="top">Supervisory values set by the Committee

or

At national discretion, provided by bank based on own   estimates (with an allowance to exclude certain exposures)</td>
<td width="197" valign="top">Provided by bank based on own estimates (with an allowance   to exclude certain exposures)</td>
</tr>
</tbody>
</table>
<div id="_mcePaste" style="position: absolute; left: -10000px; top: 0px; width: 1px; height: 1px; overflow: hidden;">
<p class="MsoNormal" style="margin-left: 0.25in;">This approach involves assigning risk weights based on the internal rating of the borrowers. The ratings exercise must fulfill certain criteria to the satisfaction of the regulator. There are two options available. They are Foundation approach and Advanced Approach.</p>
<p class="MsoNormal" style="margin-left: 0.25in;"> </p>
<p class="MsoNormal" style="margin-left: 0.25in;">In the IRB approaches, the bank’s internal assessment of key risk parameters serves as the primary input to capital computation. The key features of this approach are:</p>
<p class="MsoNormal" style="margin-left: 0.25in;"> </p>

<ol style="margin-top: 0in;" type="1">
	<li class="MsoNormal">Capital      charge computation is dependent on probability of default (PD), Loss given      at default (LGD), exposure at default (ED) and effective maturity (M).</li>
</ol>
<p class="MsoNormal" style="margin-left: 0.25in;"> </p>

<ol style="margin-top: 0in;" type="1">
	<li class="MsoNormal">The      IRB approach computes the capital requirement of each exposure directly.</li>
</ol>
<p class="MsoNormal"> </p>

<ol style="margin-top: 0in;" type="1">
	<li class="MsoNormal">Banks      need to categorise<span> </span>banking book      exposures into broad classes of assets. The classes of assets are      corporates, sovereigns, banks, retail and equity. Within corporates and      retail, there are sub-clauses, which are separately identified.</li>
</ol>
<p class="MsoNormal"> </p>

<ol style="margin-top: 0in;" type="1">
	<li class="MsoNormal">Risk      weighted assets are derived from the capital charge computation. Banks      must use the risk weight functions provided by Basel II.</li>
</ol>
<p class="MsoNormal"> </p>

<ol style="margin-top: 0in;" type="1">
	<li class="MsoNormal">IRB      approach does not allow banks to determine all elements.</li>
</ol>
<p class="MsoNormal"> </p>

<ol style="margin-top: 0in;" type="1">
	<li class="MsoNormal">Foundation      and Advanced approaches differ primarily in terms of the inputs that are      provided by the bank on its own estimates and those that are specified by      the supervisor.</li>
</ol>
<p class="MsoNormal"> </p>

<ol style="margin-top: 0in;" type="1">
	<li class="MsoNormal">Under      the Foundation approach, as a general rule, banks provide their own      estimates of PD – probability of default and rely on supervisory estimates      for other risk components.</li>
</ol>
<p class="MsoNormal"> </p>

<ol style="margin-top: 0in;" type="1">
	<li class="MsoNormal">Under      the advanced approach, banks provide more of their own estimates of PD,      LGD, EAD and M.</li>
</ol>
<p class="MsoNormal"> </p>

<ol style="margin-top: 0in;" type="1">
	<li class="MsoNormal">Banks      adopting IRB approach are expected to continue to use the same. A      voluntary return to earlier or lower approach is permitted only in      exceptional cases with prior permission from the supervisor.</li>
</ol>
<p class="MsoNormal" style="margin-left: 0.5in;"> </p>
<p class="MsoNormal" style="margin-left: 0.25in;"> </p>

</div>

Basel II - Internal Ratings Based (IRB) Approach

Basel II - An Overview

This frontmatter description will appear below the title

Basel II - An Overview

Lessons

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