The Basel Handbook
First published:
ISBN: 9781904339557
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IRB-Compliant Models in Retail Banking
Robina Nankervis and Maxine Nelson
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
This chapter describes the challenge that retail banking units are facing in order to satisfy the requirements of an IRB approach within Basel II. It must not be forgotten that the IRB approach is not the only way to satisfy future regulation but merely an option. However, a large number of organisations that have chosen to aim for an IRB approach are also building more than is required from a regulatory perspective and treating the work as being more about improving the risk management capability of the organisation than complying with regulations. And this makes sense: only time will tell how many non-IRB-compliant organisations remain, but some early predictions suggest that those that choose the standardised approach could be competitively disadvantaged or, at worst, likely candidates for takeover.
This chapter focuses on providing a pragmatic account of how to develop the models required to satisfy the IRB requirements for a retail banking organisation. The chapter frequently refers to a “bank”, but obviously all the content of this chapter is equally valid for other retail lending organisations, in particular building societies and other mutual organisations.
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