Think you know IRB approach for banks?

What is the first dimension that must be assessed for retail exposures using the IRB approach?

What must facility ratings reflect for advanced approach banks using the IRB approach?

What must banks demonstrate when assigning exposures to a particular pool for IRB purposes?

What is one of the factors that must be considered when estimating PD, LGD, and EAD for each pool?

What is the facility dimension for foundation IRB banks used for?

What must banks have to ensure a meaningful distribution of exposures across grades?

Which of the following is not one of the factors that must be considered when estimating PD, LGD, and EAD for each pool?

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.

Test your knowledge of Internal Ratings-Based (IRB) approach for banks with this quiz! Learn about the rating dimensions and structures for retail and corporate exposures, the factors that impact ratings, and the specifics of assigning exposures to different risk pools. Challenge yourself to understand the key components of Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD), and how they are estimated for each pool. Take the quiz to see if you have what it takes to differentiate risk