Credit Risk: Quantitative Impact
The new credit risk specifications include, inter alia, the implementation of higher floors for the PD, LGD, and EAD in the IRBA models, which allow banks to estimate these parameters internally. It also requires the migration of certain exposures from the AIRBA to the FIRBA and SA. However, the utmost goal of the Basel reform package is the reduction of the variability of RWAs across time. These revisions target the reduction of the variability of RWAs across time, and implicitly amongst banks with similar portfolio risk profiles. The current chapter examines the quantitative impact of the structural changes that Basel introduces in the calculation of capital requirements under the FIRBA and AIRBA.
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