Basel Committee On Banking Standards Second Report On Risk-Weighted Assets

On April 1, 2016, the Basel Committee on Banking Supervision published a second report on banking book risk- weighted asset valuation. The report forms part of the Regulatory Consistency Assessment Programme with the aim of effecting full implementation of the Basel III framework. The Committee's first report in 2013 focused on probability of default and loss-given-default-estimates for sovereign, bank and corporate exposures. This second report examines the variability of RWA in banks that use internal models to calculate their risk regulatory capital requirements. The report is focused on two areas of risk estimates: RWA variability in retail and small and medium-sized enterprise banking books; and variability in estimates of exposure at the time of default across the entire banking book. A major objective of the report is to identify the main drivers of RWA variation and evaluate their effects. The approach taken to explore RWA variation in retail and SME is described as a backtesting (or benchmarking) study that attempts to establish whether bank Internal Ratings Based estimates have a reasonable relationship to actual default and loss outcomes. The other primary...