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Version date: 7 December 2017 - onwards

Standardised approach for credit risk

Introduction

1. The Committee permits banks to choose between two broad methodologies for calculating their risk-based capital requirements for credit risk. The first, the standardised approach, assigns standardised risk weights to exposures as described in paragraphs 4 to 97. To determine the risk weights in the standardised approach for certain exposure classes, in jurisdictions that allow the use of external ratings for regulatory purposes, banks may, as a starting point, use assessments by external credit assessment institutions that are recognised as eligible for capital purposes by national supervisors, in accordance with paragraphs 98 to 116. Under the standardised approach, exposures should be risk-weighted net of specific provisions (including partial write-offs).

2. The second risk-weighted capital treatment for measuring credit risk, the internal ratings-based (IRB) approach, allows banks to use their internal rating systems for credit risk, subject to the explicit approval