Designing and Implementing a Basel II Compliant PIT–TTC Ratings Framework
Scott D Aguais, Lawrence R Forest Jr, Martin King, Marie Claire Lennon and Brola Lordkipanidze
Development and Validation of Key Estimates for Capital Models
Explaining the Correlation in Basel II: Derivation and Evaluation
Explaining the Credit Risk Elements in Basel II
Loss Given Default and Recovery Risk: From Basel II Standards to Effective Risk Management Tools
Assessing the Validity of Basel II Models in Measuring Risk of Credit Portfolios
Measuring Counterparty Credit Risk for Trading Products under Basel II
Implementation of an IRB-Compliant Rating System
Stress Tests of Banks’ Regulatory Capital Adequacy: Application to Tier 1 Capital and to Pillar 2 Stress Tests
Advanced Credit Model Performance Testing to Meet Basel Requirements: How Things Have Changed!
Designing and Implementing a Basel II Compliant PIT–TTC Ratings Framework
Basel II in the Light of Moody’s KMV Evidence
Basel II Capital Adequacy Rules for Retail Exposures
IRB-Compliant Models in Retail Banking
Basel II Capital Adequacy Rules for Securitisations
Regulatory Priorities and Expectations in the Implementation of the IRB Approach
Market Discipline and Appropriate Disclosure in Basel II
Validation of Banks’ Internal Rating Systems – A Supervisory Perspective
Rebalancing the Three Pillars of Basel II
Implementing a Basel II Scenario-Based AMA for Operational Risk
Loss Distribution Approach in Practice
An Operational Risk Rating Model Approach to Better Measurement and Management of Operational Risk
Constructing an Operational Event Database
Insurance and Operational Risk
INTRODUCTION
Since the first edition of The Basel Handbook was published in early 2004, major internationally active banks around the world have continued to engage in substantial projects for designing and implementing the extensive Basel II framework. To achieve the advanced internal ratings based (AIRB) status, banks need to develop a variety of credit models that estimate, for each obligor, probability of default (PD) and, for each credit exposure or facility, loss given default (LGD) and exposure at default (EAD). In developing the required PD models, many banks have had to redesign or refine their risk-rating approaches. In this process, banks have found it necessary to determine whether various PD measures are “point-in-time” (PIT), “through-the-cycle” (TTC) or a hybrid, somewhere between PIT and TTC.22For the purposes of this chapter, we will generally use PD to refer to both “credit ratings” and probabilities of default. Further below, we explain some more subtle differences between these two concepts.
In the first edition of The Basel Handbook, we contributed a chapter that introduced concepts for thinking about PIT–TTC PD issues and presented preliminary empirical
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