Regulatory Priorities and Expectations in the Implementation of the IRB Approach

Ed Duncan

Since this chapter was first published back in 2003 in the first edition of the Basel Handbook, further work has been done by regulators and the regulated on the implementation of the Basel II framework and the IRB approach. This updated version attempts to uncover the key developments and trends that have emerged as a result of this work, and where possible, highlight the progress regulators have made in identifying priorities and managing expectations in the implementation of the IRB approach.

Please note that developments and progress made in other important areas of Basel II (such as with the operational risk charge, the supervisory review process under Pillar Two and the disclosure requirements set out in Pillar Three) are covered elsewhere in the Handbook. This chapter focuses entirely on the minimum standards for internal ratings based (IRB) systems, the corner stone of the new credit risk capital charge under Basel II. To achieve this, we will consider both Basel literature and those proposals published by regional and national regulatory bodies, with a view to assessing the practicalities involved in implementation and outlining the main priorities of the regulators.

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