Introduction

3.1 This chapter provides feedback to responses to chapter 4 of consultation paper (CP) 16/22 - Implementation of the Basel 3.1 standards, which set out proposals to implement the Basel 3.1 standards for the internal ratings based (IRB) approach to credit risk. This chapter also sets out the Prudential Regulation Authority's (PRA) near-final policy on the IRB approach for credit risk following the consultation.

3.2 In CP16/22, the PRA proposed to introduce restrictions on the use of the IRB approach for equities and low default portfolios such as exposures to banks, financial corporates, large corporates, and sovereign exposures. Other proposals included changes to the risk parameters used in IRB modelling, including new input floors for probability of default (PD), loss given default (LGD) and exposure at default (EAD), and greater specification of parameter estimation practices to reduce variability in risk-weighted assets (RWAs) for portfolios where the IRB approach remains available.

3.3 The PRA received 34 responses to its proposals on the IRB approach for credit risk. Responses covered a wide range of the PRA's proposals. Comments focused on:

- the appropriate approaches to credit risk for different types of exposures;

- the calibration of IRB risk weight parameters;

- the proposals to remove the small and medium-sized enterprises (SME) support factor and the infrastructure support factor;