Use of PIT model neutralises impact of counter-cyclical capital buffer

Banks using a PIT model instead of a TTC model may receive a capital saving for the Basel III counter-cyclical capital buffer but such an approach might not be viewed as within the spirit of the rules by regulators

Banks using a point-in-time (PIT), rather than a through-the-cycle (TTC) model, for calculating capital under the internal ratings-based approach to credit risk could neutralise the impact of the counter-cyclical capital buffer, according to research by the Hong Kong arm of consultancy Accenture.

Concerns that the prevailing approach to bank regulation resulted in pro-cyclical application of capital charges, which amplified the impact of the financial crisis, led the Basel Committee to propose