Think you know IRB approach for banks?

This text discusses rating dimensions and structures for retail and corporate exposures for banks using the Internal Ratings-Based (IRB) approach. The first dimension for retail exposures must assess the risk of borrower default, with separate exposures to the same borrower assigned the same grade. Exceptions include country transfer risk and associated guarantees. The second dimension must reflect transaction-specific factors such as collateral, seniority, and product type. For foundation IRB banks, a facility dimension that reflects both borrower and transaction-specific factors can fulfill this requirement. For advanced approach banks, facility ratings must reflect exclusively on Loss Given Default (LGD). Banks must assign each exposure that falls within the definition of retail for IRB purposes into a particular pool, demonstrating a meaningful differentiation of risk, grouping of sufficiently homogenous exposures, and accurate and consistent estimation of loss characteristics at pool level. Banks must estimate Probability of Default (PD), LGD, and Exposure at Default (EAD) for each pool, with considerations for borrower risk characteristics, transaction risk characteristics, and delinquency of exposure. A bank must have a meaningful distribution of exposures across grades with no excessive concentrations on both its borrower-rating and facility-rating scales.